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A UNIFORM THEORY OF FEDERAL COURT
JURISDICTION UNDER THE FEDERAL ARBITRATION
ACT
Kristen M. Blankley*
INTRODUCTION
[I]t is inconceivable that Congress intended the [arbitration] rule[s] to differ depending upon which party to the arbitration agreement first invokes the assistance of a federal court.1
Justice Brennan described the Federal Arbitration Act2 (“FAA”) as an
“anomaly” among federal statutes because its protections are substantive,
but litigants cannot invoke the statute as the basis for federal court jurisdiction.3 To seek the protections of the FAA, parties must also invoke diversity
or federal question jurisdiction.4 This interpretation stems from FAA Section 4, which states that jurisdiction lies in any district court which, “save
for such agreement [to arbitrate], would have jurisdiction under title 28, in a
civil action or in admiralty of the subject matter of a suit arising out of the
*
Assistant Professor, University of Nebraska College of Law. Thanks to Dean Susan Poser, John
Lenich, Steve Bradford, Richard Moberly, Eric Berger, Ellen Deason, and Carli Conklin for help on
earlier drafts of this Article. Thank you to the AALS Section of Dispute Resolution Works in Progress
Conference for the opportunity to workshop this Article. Thanks, always, to my husband Michael
Douglass.
1 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967).
2 9 U.S.C. §§ 1-307 (2012).
3 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983) (“The
Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of
federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it
does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise.”
(citation omitted)); see Vaden v. Discover Bank, 556 U.S. 49, 59 (2009); Hall St. Assocs., L.L.C. v.
Mattel, Inc., 552 U.S. 576, 582 (2008) (noting that the FAA provides “no federal jurisdiction but rather
requir[es] an independent jurisdictional basis”); see also Cmty. State Bank v. Strong, 651 F.3d 1241,
1252 (11th Cir. 2011) (“It is a long-accepted principle that the FAA is non-jurisdictional: The statute
does not itself supply a basis for federal jurisdiction over FAA petitions.”); Northport Health Servs. of
Ark., LLC v. Rutherford, 605 F.3d 483, 486 (8th Cir. 2010). Certainly, other statutes exist that are
anomalies in their own right. For example, Section 301 of the Taft-Hartley Act grants federal court
jurisdiction for breach of contract suits for violations of labor management agreements in industries
affecting interstate commerce. The Act itself, however, does not create federal substantive law. See
Textile Workers Union of Am. v. Lincoln Mills of Ala., 353 U.S. 448, 456-57 (1957). The Declaratory
Judgment Act, discussed below, is another similar statute.
4 Parties could also invoke admiralty law, but this paper only considers federal question and
diversity jurisdiction because they are the grounds most often used for jurisdiction.
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[VOL. 23:3
controversy between the parties.”5 Determining the “controversy” between
the parties has proved particularly problematic. In some instances, the “controversy” only entails litigation activities already instituted by the parties. In
other instances, the “controversy” is the matter to be arbitrated.
In 2009, the Supreme Court’s decision in Vaden v. Discover Bank6 attempted to answer some of these questions, but the opinion lacks critical
guidance and philosophical underpinnings necessary for a consistent rule
interpreting the FAA. The limited nature of the decision has led to additional circuit splits. The complexities multiply as one considers the different
intersections of arbitration law and federal court, primarily on the “front
end” of arbitration (such as compelling a motion to arbitrate) and the “back
end” of arbitration (such as challenging an arbitration award).7
A new, uniform standard for federal court jurisdiction under the FAA
would better serve the text and goals of the statute, as well as the courts and
parties to arbitration agreements. Specifically, the courts should apply a
uniform rule to consider the arbitrable controversy for jurisdictional purposes. If the arbitral controversy would otherwise give rise to federal court
jurisdiction, then the federal court should have jurisdiction. Since Vaden, no
other article has considered these jurisdictional complexities,8 and none of
the existing scholarship has dealt with federal court jurisdiction on issues
other than motions to compel arbitration. This Article fills these gaps in the
scholarship.
Part I herein considers the jurisdictional default rules as well as the
structure and history of the FAA. Part II details the Vaden decision and the
myriad of post-Vaden complications. Part III sets forth and supports a new
proposal, namely that the courts consider the arbitrable controversy for jurisdictional purposes. Part III also proposes that the courts or Congress
adopt the proposal and simplify the current jurisdictional quagmire. Part IV
then explores the implications of the proposal.
5
9 U.S.C. § 4.
556 U.S. 49 (2009).
7 Additional issues may arise when the underlying dispute is international in nature and the
controversy is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, done in New York on June 10, 1958. 9 U.S.C. §§ 201-208 (2012). This Article deals exclusively with domestic arbitration and does not explore the additional complexities in international cases.
8 Professor Szalai wrote an important piece in this area prior to the Vaden decision. Imre S.
Szalai, The Federal Arbitration Act and the Jurisdiction of the Federal Courts, 12 HARV. NEGOT. L.
REV. 319, 325 (2007) (suggesting adherence to a broad jurisdictional view). Only a handful of notes
discuss the issue post-Vaden. See Leda Moloff, Note, On The Face of It? Establishing Jurisdiction on
Claims to Compel Arbitration Under Section 4 of the FAA, 77 FORDHAM L. REV. 181, 184 (2008) (arguing for the application of the well-pleaded complaint rule in Section 4 petition cases).
6
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A UNIFORM THEORY OF FEDERAL COURT JURISDICTION
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FEDERAL COURT JURISDICTION AND THE FAA
An understanding of federal jurisdiction and the FAA aids in the later
discussion of Vaden and its progeny. Extraordinary complexities surrounding the jurisdictional limits of the federal courts exist, and this Article does
not delve deeply into those nuances. Instead, this Part provides a backdrop
to aid the discussion of how the courts have used these doctrines when considering the jurisdiction for the FAA.
A.
Constitutional Limitations on Jurisdiction
The “[f]ederal courts are courts of limited jurisdiction.”9 Article III of
the Constitution articulates these limitations.10 Most relevant to this discussion are the bases of jurisdiction for “Cases, in Law and Equity, arising
under . . . the Laws of the United States” and cases “between Citizens of
different States.”11 Congress must also pass legislation effectively funneling
the cases into the federal courts,12 which it has done for federal question and
diversity jurisdiction.13
9 Gunn v. Minton, 133 S. Ct. 1059, 1064 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of
Am., 511 U.S. 375, 377 (1994)) (internal quotation marks omitted).
10 U.S. CONST. art. III; see also ERWIN CHEMERINSKY, FEDERAL JURISDICTION 41 (5th ed. 2007)
(“Article III of the Constitution defines the scope of federal court authority. . . . [including] subject
matter jurisdiction.”).
11 U.S. CONST. art. III, § 2, cl. 1; see E. Farish Percy, Making a Federal Case of It: Removing
Civil Cases to Federal Court Based on Fraudulent Joinder, 91 IOWA L. REV. 189, 196 (2005) (“Diversity jurisdiction was a topic of relatively little discussion during the Constitutional Convention. Although
the framers amended Edmond Randolph’s original resolution before agreeing on the final language
authorizing diversity jurisdiction, the records of the Convention provide little evidence of the framers’
intent. The provision extending ‘Judicial Power’ ‘to controversies . . . between Citizens of different
States’ was unanimously accepted without any recorded debate.” (footnotes omitted) (quoting U.S.
CONST. art. III, § 2, cl. 1)).
12 Gunn, 133 S. Ct. at 1064 (“There is no dispute that the Constitution permits Congress to extend
federal court jurisdiction to a case such as this one; the question is whether Congress has done so.”
(citation omitted)); CHEMERINSKY, supra note 10, at 41 (“Congress plays an important role in limiting
federal court jurisdiction. The Supreme Court has held that a federal court may hear a matter only when
there is both constitutional and statutory authorization.”); Percy, supra note 11, at 203 (“Even though
the Constitution clearly authorizes diversity jurisdiction, it does not actually confer such jurisdiction on
the federal district courts. Federal district courts are courts of limited jurisdiction and can exercise only
that jurisdiction that has been constitutionally authorized and actually conferred by statute.”).
13 28 U.S.C. § 1331 (2012) (cases arising under federal law); 28 U.S.C. § 1332(a) (cases arising
under diversity of citizenship); see also Percy, supra note 11, at 203 (“Section 1332 of the Judicial Code
grants federal district courts original jurisdiction over cases between ‘citizens of different states’ in
which the matter in controversy exceeds $75,000, exclusive of interest and costs.”).
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Congressional Limitations on Jurisdiction
1.
Federal Questions Jurisdiction
Federal courts have jurisdiction under Article III for cases “arising under” the laws of the United States.14 A case can arise under federal law in
two ways. “Most directly, a case arises under federal law when federal law
creates the cause of action asserted.”15 Second, in a “special and small” category of stated, related causes of action, federal jurisdiction may still lie
under the “arising under” jurisdiction.16 Federal jurisdiction will lie if the
state law cause of action involves a federal issue that is “(1) necessarily
raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in
federal court without disrupting the federal-state balance approved by Congress.”17 When these requirements are met, “jurisdiction is proper because
there is a ‘serious federal interest in claiming the advantages thought to be
inherent in a federal forum,’ which can be vindicated without disrupting
Congress’s intended division of labor between state and federal courts.”18
For cases originating in state court, under the well-pleaded complaint
rule, the existence of the federal question must be evident on the face of the
complaint, and not based on an anticipated federal-law counterclaim or
defense.19 This rule applies equally to plaintiffs who file in federal court as
well as defendants who remove cases from state court to federal court.20 In
14
U.S. CONST. art. III, § 2, cl. 1; 28 U.S.C. § 1331. Although both the Constitution and 28 U.S.C.
§ 1331 use the terms “arising under” federal law, the Supreme Court has interpreted the statutory grant
of jurisdiction in § 1331 significantly narrower than the potential grant of jurisdiction found in the
Constitution. See CHEMERINSKY, supra note 10, at 282 (“28 U.S.C. §1331 provides that the ‘district
courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties
of the United States.’ As described earlier, the Supreme Court repeatedly has held that this provision has
a much narrower meaning than does the corresponding language in Article III.”).
15 Gunn, 133 S. Ct. at 1064 (citing Am. Well Works Co. v. Layne & Bowler Co., 241 U.S. 257,
260 (1916)).
16 Id. (“In outlining the contours of this slim category, we do not paint on a blank canvas. Unfortunately, the canvas looks like one that Jackson Pollock got to first.”).
17 Id. at 1065.
18 Id. (quoting Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 313-14
(2005)).
19 Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 152 (1908); see also Franchise Tax Bd.
v. Constr. Laborers Vacation Tr., 463 U.S. 1, 10 (1983) (“For better or worse, under the present statutory scheme as it has existed since 1887, a defendant may not remove a case to federal court unless the
plaintiff’s complaint establishes that the case ‘arises under’ federal law.”). This rule applies to compulsory counterclaims. See Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 830
(2002) (“Respondent argues that the well-pleaded-complaint rule, properly understood, allows a counterclaim to serve as the basis for a district court’s ‘arising under’ jurisdiction. We disagree.”).
20 See, e.g., Retail Prop. Tr. v. United Bhd. of Carpenters & Joiners of Am., 768 F.3d 938, 947
(9th Cir. 2014) (“The well-pleaded complaint rule means that ‘a case may not be removed to federal
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A UNIFORM THEORY OF FEDERAL COURT JURISDICTION
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addition, parties cannot circumvent the well-pleaded complaint rule by asserting a claim under the Declaratory Judgment Act21 (“DJA”) or under the
FAA. This Article discusses procedural similarities between the DJA and
the FAA in Section IV.B.
2.
Diversity Jurisdiction
Statutory diversity jurisdiction involves two elements.22 First, the parties must be completely diverse—each defendant is a citizen of a different
State from each plaintiff.23 The party seeking diversity jurisdiction has the
burden of demonstrating diversity.24 For class actions under the Class Action Fairness Act of 200525 (“CAFA”), only “minimal diversity” is required.26 Under the CAFA, “a federal court may exercise jurisdiction over a
class action if ‘any member of a class of plaintiffs is a citizen of a State
different from any defendant.’”27 Plaintiffs must allege diversity on the face
of a complaint or in a notice of removal,28 and the parties may not resort to
collusion to manufacture jurisdiction.29
court on the basis of a federal defense.’” (quoting Caterpillar Inc. v. Williams, 482 U.S. 386, 393
(1987))).
21 28 U.S.C. § 2201 (2012); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950)
(noting that because the Declaratory Judgment Act is a procedural act only, it cannot serve as the basis
of a federal court action). The well-pleaded complaint rule serves some legitimate policy ends. The rule
ensures that federal jurisdiction is established at the onset, as opposed to hypothetical jurisdiction based
on claims, actions, and defenses that might arise in the future. The well-pleaded complaint rule, then,
establishes certainty for the limited federal judicial resources. In addition, the plaintiff is the “master of
the complaint,” and the well-pleaded complaint rule enables a plaintiff, “by eschewing claims based on
federal law . . . to have the cause heard in state court.” Caterpillar Inc., 482 U.S. at 398-99. An alternate
rule would erode the plaintiff’s choice of forum.
22 The Constitution only requires minimal diversity, and it does not implement an amount-incontroversy requirement. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 584 (2005)
(Ginsburg, J., dissenting). The additional requirements are found in 28 U.S.C. § 1332 (2012).
23 See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267 (1806). In addition, the parties could be
citizens of a different country, provided that the opposing parties are citizens of a state. See 28 U.S.C. §
1332(a)(2) (2012).
24 See, e.g., Cameron v. Hodges, 127 U.S. 322, 326 (1888) (discussing burden of proof).
25 Pub. L. No. 109-2, 118 Stat. 4 (codified at 28 U.S.C. §§ 1332(d), 1453, 1711-1715 (2012)).
26 Mississippi ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736, 740 (2014).
27 Id. (quoting 28 U.S.C. § 1332(d)(2)(A)).
28 The important time for diversity of citizenship is the time the complaint or notice of removal is
filed. Diversity of citizenship at the time the cause of action arose or at the time of ultimate judgment
does not matter for this inquiry. See Caterpillar Inc. v. Lewis, 519 U.S. 61, 69 (1996); see also Grupo
Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 570 (2004).
29 See Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 827-28 (1969) (discussing the impropriety
of assigning the cause of action to a different party for the purpose of establishing diversity jurisdiction).
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The second requirement is the amount in controversy, which currently
stands at $75,000.30 Congress intended for the amount in controversy requirement to save the federal courts for “important,” cases, but critics have
rightly noted that a high dollar amount does not necessarily equate to the
importance of a case.31 The jurisdictional amount alleged by the party asserting jurisdiction controls unless the opposing party can show by a “legal
certainty” that the claim is for less than the jurisdictional amount.32 To determine the value of the claim, courts consider either monetary damages
alleged or “the value of the object of the litigation.”33
3.
Removal Jurisdiction
The removal jurisdiction of the courts is based on the belief that both
plaintiffs and defendants should be able to avail themselves of the federal
forum.34 Under 28 U.S.C. § 1441(a), a defendant may remove “any civil
action brought in a State court of which the district courts of the United
States have original jurisdiction.”35 Thus, litigants may only remove a case
to federal court if it could originally have been brought in federal court. For
diversity cases, removal is not available if any of the defendants is a citizen
of the state in which the action is brought because the forum is presumed
“neutral” for the in-state defendant.36 Ordinarily, plaintiffs in state court
30 28 U.S.C. § 1332(a) (2012) (“The district courts shall have original jurisdiction of all civil
actions where the matter in controversy exceeds the sum or value of $75,000 . . . .”).
31 CHEMERINSKY, supra note 10, at 315 (“For an individual, $5,000 may represent a life’s savings,
but for a multibillion-dollar corporation, $75,000 is a mere pittance.”). It is also worth noting that federal question cases contained an amount-in-controversy requirement from 1789 to 1980. Id. at 314-15.
32 St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938) (“The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a
different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It
must appear to be a legal certainty that the claim is really for less than the jurisdictional amount to
justify the dismissal.” (footnotes omitted)).
33 Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333, 347-48 (1977).
34 See Perry Thomas Klauber, Article, Reversing a Wayward Trend: Why Courts Using the Functional Test for Removal Are Right, 46 ARIZ. ST. L.J. 1499, 1501 (2014) (“Section 1441 was partly designed to provide defendants with a federal forum for federal question claims, but also to protect a
defendant’s right of removal from state infringement.” (footnote omitted) (citing 16 JAMES WM. MOORE
ET AL., MOORE’S FEDERAL PRACTICE § 107.01 (3d ed. 2013))).
35 28 U.S.C. § 1441(a) (2012). The statute explicitly applies to “defendants,” and plaintiffs cannot
remove cases to federal courts.
36 Id. § 1441(b)(2); JoEllen Lind, “Procedural Swift”: Complex Litigation Reform, State Tort
Law, and Democratic Values, 37 AKRON L. REV. 717, 741 (2004) (“[T]he defendant need not typically
be concerned with achieving a more neutral forum, when the plaintiff has submitted to the very state
court system from whence the defendant hails.”).
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A UNIFORM THEORY OF FEDERAL COURT JURISDICTION
531
litigation may not artificially manufacture a low amount in controversy to
defeat federal court jurisdiction.37
Plaintiffs, as masters of their complaints, can take measures to try to
defeat removal by adding non-diverse parties or by forgoing federal claims.
Jurisdiction is determined at the time of removal.38 Post-removal maneuvers, such as reducing the amount in controversy, may not defeat a notice of
removal.39
4.
Simplicity in Jurisdictional Rules
Recent Supreme Court rulings have stressed the policy of simplicity in
the application of jurisdictional statutes. These rulings, which occurred
post-Vaden, indicate a shift in policy priorities for the interpretation of jurisdictional statutes. In Hertz Corp. v. Friend,40 decided one year after Vaden, the Court was confronted with how to determine a corporation’s principle place of business.41 The court recognized the historical difficulty in
making this determination and the “growing complexity” of tests employed
by the lower courts.42
The unanimous Court turned to simplicity as a guiding principle in the
application of jurisdictional rules. It stated: “[W]e place primary weight
upon the need for judicial administration of a jurisdictional statute to remain as simple as possible.”43 The virtues of simplicity include “a nationally uniform interpretation of federal law,”44 ease of application,45 and “greater predictability.”46 The Court noted that “[c]omplex jurisdictional tests
complicate a case, eating up time and money as the parties litigate, not the
merits of their claims, but which court is the right court to decide those
37
See 28 U.S.C. § 1446(c)(2) (indicating that ordinarily the amount-in-controversy is set by the
complaint, but that a court may determine a different amount-in-controversy); see also Morgan v. Gay,
471 F.3d 469, 477 (3d Cir. 2006); De Aguilar v. Boeing Co., 47 F.3d 1404, 1411 (5th Cir. 1995);
Austwick v. Bd. of Educ., 555 F. Supp. 840, 842 (N.D. Ill. 1983).
38 Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 570 (2004); Caterpillar Inc. v. Lewis,
519 U.S. 61, 69 (1996).
39 See Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345, 1350 (2013) (holding that in the class
action context, the stipulation of the named plaintiff does not bind unnamed class members); St. Paul
Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 293 (1938) (stating general rule). A plaintiff, however, may seek to remand the action on the ground that it seeks to join additional parties who will destroy diversity. See 28 U.S.C. § 1447(e).
40 559 U.S. 77 (2010).
41 Id. at 80.
42 Id. at 91.
43 Id. at 80.
44 Id. at 92.
45 Id. at 94 (“Second, administrative simplicity is a major virtue in a jurisdictional statute.”).
46 Hertz, 559 U.S. at 94 (“Simple jurisdictional rules also promote greater predictability. Predictability is valuable to corporations making business and investment decisions.”).
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claims.”47 In addition, they can “produce appeals and reversals, encourage
gamesmanship, and, again, diminish the likelihood that results and settlements will reflect a claim’s legal and factual merits.”48
The Court went so far as to value simplicity over perfection. In Hertz,
the Court adopted the “nerve center” test, and described it as “imperfect,”
but “superior to other possibilities.”49 The benefits of a simple jurisdictional
test for the courts and the parties outweighed the constant tinkering of the
tests, resulting in varying tests across the country.
The Hertz case appears to set forth a new guiding principle in civil litigation jurisprudence. In the last few years, the Supreme Court has cited the
case positively.50 The Court, however, decided Vaden before this new dedication to jurisdictional simplicity. Revisiting Vaden with an eye towards
simplicity and utility makes sense in light of Hertz.
C.
The FAA’s Jurisdictional and Venue Language
Congress enacted the FAA in 1925, and early cases interpreted it as a
“procedural” statute applying in federal courts.51 The FAA achieves two
primary purposes: (1) to make agreements to arbitrate enforceable, and (2)
to ensure that arbitral awards are enforced.52 These next Subsections discuss
the jurisdictional requirements of the FAA.
1.
Jurisdiction to Enforce Arbitration Agreements
The heart of the FAA lies in Section 2, which makes arbitration
agreements “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”53 Section 2 encompasses the “national
47
Id.
Id.
49 Id. at 92-93.
50 See Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124, 1131 (2015) (“Such a rule would be inconsistent . . . with our rule favoring clear boundaries in the interpretation of jurisdictional statutes.” (citing
Hertz, 559 U.S. at 94)); Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014) (quoting Hertz to support
the proposition that simple jurisdictional rules “promote greater predictability”).
51 Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 286-88 (1995) (Thomas, J., dissenting) (collecting cases).
52 Kristen M. Blankley, Impact Preemption: A New Theory of Federal Arbitration Act Preemption, 67 FLA. L. REV. 711, 719-20 (2015) (“Congress passed the FAA to make arbitration agreements
specifically enforceable . . . [and to ensure] that arbitration awards are enforceable as court judgments.”
(footnote omitted)).
53 9 U.S.C. § 2 (2012). In 1984, the Supreme Court interpreted § 2 to apply to state courts as
substantive federal law. Southland Corp. v. Keating, 465 U.S. 1, 12 (1984). As to the rest of the FAA,
the Court mentioned in a footnote: “[W]e do not hold that §§ 3 and 4 of the Arbitration Act apply to
proceedings in state courts. Section 4, for example, provides that the Federal Rules of Civil Procedure
48
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A UNIFORM THEORY OF FEDERAL COURT JURISDICTION
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policy favoring arbitration.”54 The procedural mechanism for enforcing
these agreements lies in Sections 3 and 4. Under Section 3, a party can seek
a stay of federal litigation if the parties have a valid agreement to arbitrate.55
The jurisdiction under Section 3 is uncontroversial because the court has
already established jurisdiction in the underlying federal case. Under Section 4, a party seeking to enforce an arbitration agreement
may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising
out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.56
These two statutes do not contain any venue provisions, and the normal
venue rules apply.57 Parties may avail themselves of the remedy provided in
Section 4 whether or not litigation has commenced.
The purpose of these Sections is to “move the parties to an arbitrable
dispute out of court and into arbitration as quickly and easily as possible,”58
and expedited motion practice accomplishes this purpose. The jurisdictional
reach of Section 4 is controversial because the “save for such agreement”
language is ambiguous and not defined. According to the legislative history,
the FAA does not create jurisdiction.59 Courts have yet to develop conapply in proceedings to compel arbitration. The Federal Rules do not apply in such state-court proceedings.” Id. at 16 n.10. The courts have affirmed the unusual dichotomy that part of the federal statute is
substantive while the remainder is procedural in nature. See, e.g., Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 (1983) (“[S]tate courts, as much as federal courts, are obliged to grant
stays of litigation under § 3 of the Arbitration Act. It is less clear, however, whether the same is true of
an order to compel arbitration under § 4 of the Act. We need not resolve that question here.” (footnotes
omitted)). While the question of the future applicability of Sections 3 and 4 to the state courts is a fascinating inquiry, it is beyond the scope of this paper. For more information on this issue, see David S.
Schwartz, The Federal Arbitration Act and the Power of Congress over State Courts, 83 OR. L. REV.
541 (2004).
54 See Nitro-Life Techs., L.L.C. v. Howard, 133 S. Ct. 500, 501 (2012) (per curiam); Preston v.
Ferrer, 552 U.S. 346, 349 (2008) (“[T]he Federal Arbitration Act . . . establishes a national policy favoring arbitration when the parties contract for that mode of dispute resolution.” (citation omitted)); First
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 945 (1995) (quoting Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)); Mastrobuono v. Shearson Lehman Hutton, Inc.,
514 U.S. 52, 57 (1995) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489
U.S. 468, 476 n.5 (1989)); Mitsubishi Motors Corp., 473 U.S. at 626; Southland Corp. v. Keating, 465
U.S. 1, 10 (1984).
55 9 U.S.C. § 3 (allowing a party to make an “application . . . [to] stay the trial of the action until
such arbitration has been had in accordance with the terms of the agreement” and stating that the court
“shall” grant such application).
56 Id. § 4 (emphasis added).
57 See 28 U.S.C. § 1390 (2012).
58 Moses H. Cone, 460 U.S. at 22 (emphasis added).
59 Bills to Make Valid and Enforceable Written Provisions or Agreements for Arbitration of Disputes Arising out of Contracts, Maritime Transactions, or Commerce Among the States or Territories or
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sistent jurisprudence interpreting this language, which has led to dozens of
competing tests in this area.
2.
Jurisdiction for Confirming and Vacating Arbitration Awards
Section 9 requires federal courts to confirm arbitral awards, giving
them the same force and effect as court judgments, provided the awards are
not modified or vacated.60 Parties may specify the court to which applications for confirmation may be made.61 If the parties do not designate a
court, they may file the application in the United States federal district
where the award was “made.”62 Section 10 allows federal courts to vacate
an arbitration award under limited circumstances.63 Parties must seek vacatur in the “district wherein the award was made.”64 Section 11, dealing with
modification of an award, contains a similar venue provision.65 Section 10
is silent as to whether parties may contract for additional appropriate court
venues. The provisions specifying courts in Sections 9, 10, and 11 are venue provisions, not jurisdictional requirements.
with Foreign Nations: J. Hearings on S. 1005 and H.R. 646 Before the Subcomms. of the Comm. on the
Judiciary, 68th Cong. 34 (1924) [hereinafter 1924 Hearings] (brief of Julius H. Cohen, Gen. Counsel,
New York State Chamber of Commerce) (noting that federal courts would be “given jurisdiction to
enforce such agreements whenever under the Judicial Code they would normally have jurisdiction of a
controversy between the parties”).
60 9 U.S.C. § 9 (requiring a court to confirm an arbitration award unless it is modified or vacated
under Sections 10 or 11 of the FAA); see also id. § 13 (“The judgment so entered shall have the same
force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in
an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered.”).
61 Id. § 9.
62 Id.
63 Id. § 10(a) (allowing for vacatur of an arbitration award when: 1) the award is procured by
fraud, 2) there is “evident partiality” among the arbitrators, 3) the arbitrators are guilty of procedural
misconduct, or 4) the arbitrators exceed the powers given to them by contract). The grounds for vacatur
are extraordinarily narrow and require procedural irregularity. The courts have added additional grounds
for vacatur via common law, such as vacatur for “manifest disregard” of the law, Wilko v. Swan, 346
U.S. 427, 436 (1953), violation of “public policy,” W.R. Grace & Co. v. Local Union 759, Int’l Union
of the United Rubber, Cork, Linoleum & Plastic Workers, 461 U.S. 757, 766 (1983), and the like. The
Supreme Court has since rejected these non-statutory grounds for vacatur. Hall St. Assocs., L.L.C. v.
Mattel, Inc., 552 U.S. 576, 583-84 (2008). For more information on the grounds for vacatur and their
limitations, see Kristen M. Blankley, Lying, Stealing, and Cheating: The Role of Arbitrators as Ethics
Enforcers, 52 U. LOUISVILLE L. REV. 443, 459-62 (2014).
64 9 U.S.C. § 10(a).
65 9 U.S.C. § 11. The grounds for modification are also limited. The most common grounds for
modification include correcting mathematical errors and misspellings. See id.
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The legislative history does not touch on why Sections 3 and 4 deal
with jurisdiction while sections 9, 10, and 11 are venue provisions.66 Few
Supreme Court cases discuss these requirements. In the 2000 case Cortez
Byrd Chips, Inc. v. Bill Harbert Construction Co.,67 the Supreme Court
unanimously held that the venue provisions in Sections 9, 10, and 11 are
permissive (as opposed to restrictive) and apply in addition to the general
venue statutes.68 The Court found textual ambiguity,69 and relied on the policy that Congress intended the FAA to grant a more permissive venue than
the general venue availability at the time.70 Thus, the Court concluded that
the drafters intended for broad federal court availability to enforce arbitral
awards.71 In addition, the Court wanted to promote consistency through the
FAA and read the “back end” sections consistent with the “front end” sections.72
Two important policy considerations follow from Cortez Byrd. First,
the Cortez Byrd Court noted that the FAA intended to allow a broader access to the courts compared to access available at the time.73 This suggests
that the drafters wanted parties to have a federal forum readily available in
order to enforce arbitration rights. Second, the Court placed some emphasis
on consistent application of the whole FAA.74 Of course, the Cortez Byrd
decision is a venue decision, and the courts have long supported broad interpretation of venue provisions.75 These principles, in conjunction with the
Supreme Court’s recent rulings in Hertz,76 support this Article’s recommen-
66
The scant legislative history for the FAA deals almost exclusively with the ability to enforce
agreements to arbitrate and enforce awards. See Kristen M. Blankley, Impact Preemption: A New Theory of Federal Arbitration Act Preemption, 67 FLA. L. REV. 711, 725-27 (2015). The logistics of the
jurisdictional requirements was not discussed.
67 529 U.S. 193 (2000).
68 Id. at 195. The Supreme Court granted certiorari in the case in order to “resolve a split among
the Courts of Appeals over the permissive or mandatory character of the FAA’s venue provisions.” Id. at
196. Despite the different language of the different provisions, the Cortez Byrd Court considered all
three together. Id. at 198.
69 See id. at 199.
70 See id. at 199-200.
71 Id. at 200-01 (stating that “Congress simply cannot be tagged with such a taste for the bizarre”
and rejecting restrictive arguments presented to the Court).
72 Id. at 201-02.
73 Cortez Byrd, 529 U.S. at 199 (“When the FAA was enacted in 1925, it appeared against the
backdrop of a considerably more restrictive general venue statute than the one current today.”).
74 Id. at 201 (“A restrictive interpretation would also place § 3 and §§ 9-11 of the FAA in needless
tension, which could be resolved only by disrupting existing precedent of this Court.”).
75 See, e.g., Leroy v. Great W. United Corp., 443 U.S. 173, 185 (1979) (describing broad venue in
multidistrict cases when the “locus of the claim” may be assigned with “approximately equal plausibility”); REA Express, Inc. v. United Parcel Serv. of Am., Inc., No. C-74-385-CBR, 1975 WL 840, at *1
(N.D. Cal. Jan. 9, 1975) (applying a broad interpretation to venue provisions in antitrust law).
76 Hertz v. Friend, 559 U.S. 77, 80-81 (2010); see supra Section I.B.4.
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dation for revisiting Vaden in favor of a simple jurisdictional rule applicable in all cases.
3.
The “Application” Process
FAA Section 6 requires that the interaction between parties to arbitration agreements and the courts be styled in the form of an “application,” or
a special proceeding.77 The application “shall be made and heard in the
manner provided by law for the making and hearing of motions, except as
otherwise herein expressly provided.”78 The statutory language does not
explicitly specify whether the action is original, but it does require that the
application be made by motion, as opposed to a complaint.79 The party taking advantage of these procedures is not “initiating an action”80 and normal
pleading requirements do not apply.81 The drafters intended for court involvement to be minimal and quick and without resort to a hearing.82 The
expedited process supports the twin goals of enforcement of arbitration
77
9 U.S.C. § 6 (2012).
Id. (emphasis added).
79 See Kruse v. Sands Bros. & Co., 226 F. Supp. 2d 484, 486 (S.D.N.Y. 2002) (noting that under
Section 6, a party should file a motion to the court, not a complaint). On a rare occasion, a court will
address a poorly worded pleading utilizing the wrong procedural mechanism. See, e.g., ISC Holding AG
v. Nobel Biocare Fin. AG, 688 F.3d 98, 112 (2d Cir. 2012) (holding that parties cannot file “answers” to
the motion pleadings allowed under the FAA, but they can file responsive briefs); Caro v. Fidelity
Brokerage Servs. LLC, No. 3:12–CV–01066 (CSH), 2014 WL 3907920, at *1 n.1 (D. Conn. Aug. 11,
2014) (“Petitioners have captioned their request for vacatur as a ‘Complaint and Petition.’ Although ‘[a]
party seeking vacatur [of an arbitration award] must proceed by motion to the court,’ rather than by
filing a complaint, the Court will excuse this procedural deficiency.” (citations omitted) (quoting Kruse,
226 F. Supp. 2d at 485-86)).
80 Baylor Health Care Sys. v. Equitable Plan Servs., Inc., 955 F. Supp. 2d 678, 688 n.1 (N.D. Tex.
2013) (comparing the FAA, which involves solely motion practice, with the Texas Arbitration Act,
which requires the parties to initiate a civil action for relief).
81 See Productos Mercantiles E Industriales S.A. v. Faberge USA, Inc. 23 F.3d 41, 46 (2d Cir.
1994) (holding that the pleading requirements of the Federal Rules of Civil Procedure do not apply);
Cessna Aircraft Co. v. Avcorp Indus., Inc., 943 F. Supp. 2d 1191, 1195 (D. Kan. 2013) (“Because the
FAA provides this procedure, the requirements of Rule 8(a) and the protections of Rule 12(b)(6) have
no impact on the court’s resolution of the current issues.”).
82 See, e.g., D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006) (noting that relief
under the FAA to confirm or vacate an award is a “summary proceeding that merely makes what is
already a final arbitration award a judgment of the court” (quoting Florasynth, Inc. v. Pickholz, 750 F.2d
171, 176 (2d Cir.1984)) (internal quotation marks omitted)); U.S. Ship Mgmt., Inc. v. Maersk Line,
Ltd., 188 F. Supp 2d 358, 363 (S.D.N.Y. 2002) (“Under the FAA’s motion procedure, the Court may
consider an arbitration action by summary proceeding on the basis of the fully briefed motion papers
and without the requirement of a hearing.”), aff’d, 51 F. App’x 66 (2d Cir. 2002). But see Yearwood v.
N.Y. & Presbyterian Hosp., No. 12 Civ. 6985(PKC), 2014 WL 1651942, at *7 (S.D.N.Y. Apr. 23, 2014)
(“[I]f there is a material issue of fact in dispute as to ‘the making of the agreement for arbitration or the
failure to comply therewith,’ a court must deny the motion and hold a trial on the issue.” (quoting 9
U.S.C. § 4 (2012))).
78
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agreements and speedy dispute resolution.83 Treating both “front end” and
“back end” motions as original motions meets the goals of efficiency and
promotion of arbitration.
4.
Unanswered Questions
Even after parsing the statutory language, considering history, and reflecting on policy considerations, significant questions remain regarding the
jurisdiction of the federal courts to hear arbitration matters. Two of the
broadest questions include: (1) How should a court determine if it has jurisdiction under the FAA? and (2) Should traditional litigation rules apply to
applications filed under the FAA? Thus far, courts have established dozens
of tests for answering these questions, which are discussed in greater detail
below.84 Often the test depends on two variables: (1) whether the case involves a federal question or diversity, and (2) whether the case deals with a
“front end” or “back end” motion.85 Variations on the themes and circuit
splits exist even within these four categories of intersections with the
courts.86 No reason exists for having all of these different tests to deal with
these different situations. In fact, one unified test could considerably simplify the inquiry for both the courts and the parties to the arbitration agreements.
II.
VADEN’S IMPACT ON FEDERAL COURT JURISDICTION
The impetus for many of the divergent lower court interpretations began with the Supreme Court’s decision in Vaden v. Discover Bank. This
Part first analyzes the Vaden decision and discusses the majority and dissenting opinions. This Part then examines the divergent lower court tests
developed post-Vaden and explains the need for a uniform, predictable jurisdictional test.
83
Of course, a “party can be forced to arbitrate only those issues it specifically has agreed to
submit to arbitration.” First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 945 (1995). “[C]ourts should
not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’
evidence that they did so.” Id. at 939 (quoting AT&T Techs., Inc. v. Commc’ns Workers, 475 U.S. 643,
649 (1986)). To this end, arbitration is a creature of contract.
84 See infra Part II.B.
85 See infra Part II.B.
86 See infra Part II.B.
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The Vaden Decision
1.
The Majority Opinion
The 2009 case of Vaden v. Discover Bank is the only Supreme Court
case explicitly dealing with the jurisdictional requirements of the FAA.87
The Vaden case began as a “garden-variety, state-law-based contract action.”88 Discover Bank sued Betty Vaden in Maryland state court seeking
$10,610.74 in outstanding credit card debt, plus interest and attorney fees,
despite the presence of a broad arbitration agreement in the contract between the parties.89 In her answer, Vaden asserted usury as an affirmative
defense, and she filed several class-action counterclaims under state law.90
Discover Bank then moved to compel arbitration of the counterclaims under
Section 4 in federal court.91 Presumably, Discover Bank strategically filed
its Section 4 motion at this time to avoid class action claims.92 Why Discover Bank filed the motion in federal court, as opposed to in the underlying
state-court action, is unclear.93
Discover Bank asserted federal court jurisdiction for its motion94 because federal banking law completely preempted Vaden’s counterclaims.95
When the case reached the Supreme Court, the Court certified the following
question: “May Discover invoke § 4, not on the basis of its own complaint,
87 The Cortez case discussed above concerns venue, not jurisdiction. See supra notes 68-75 and
accompanying text.
88 Vaden v. Discover Bank, 556 U.S. 49, 54 (2009). In the last decade, the Supreme Court has
heard a relatively large number of arbitration cases. The cases garnering the most attention have been
cases dealing with issues involving class actions, statutory rights, and the enforceability of state statutes.
See, e.g., Oxford Health Plans, LLC v. Sutter, 133 S. Ct. 2064, 2066 (2013) (dealing with class action
issues); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345-49 (2011) (dealing with class action
and preemption issues); Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 666 (2010) (dealing with class action issues); In re Am. Express Merchs. Litig., 667 F.3d 204, 217-19 (2d Cir. 2012)
(dealing with statutory rights and class action issues), rev’d sub nom. Am. Express Co. v. Italian Colors
Rest. 133 S. Ct. 2304 (2013). Given these higher profile cases, the Vaden decision has received considerably less attention. This Article, then, fills the void in the scholarship on these important jurisdictional
issues.
89 Vaden, 556 U.S. at 54. The outstanding balance was money that Vaden owed on a credit card
issued by Discover Bank. Discover Bank v. Vaden, 489 F.3d 594, 597 (4th Cir. 2007), rev’d, 556 U.S.
49 (2009). Given that the underlying debt did not exceed $75,000, Discover Bank could not have invoked diversity jurisdiction, and the debt-collection action did not involve a federal question. 556 U.S.
at 54 & n.1.
90 Vaden, 556 U.S. at 54.
91 Id. at 54-55.
92 Id. at 54 n.2 (noting that the agreement between the parties prohibited class actions).
93 This question was asked at oral argument, but the parties did not have a good answer for it.
Transcript of Oral Argument at 35-37, Vaden, 556 U.S. 49 (No. 07-773).
94 Vaden, 556 U.S. at 55.
95 Id.
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which had no federal element, but on the basis of counterclaims asserted by
Vaden?”96 This question breaks down into two issues—first, can a federal
court “look though” the Section 4 petition and consider the underlying
state-court action, and second, if so, what portions of the state-court action
are permissible to consider?
In an opinion authored by Justice Ginsburg, the Court noted that although the substantive protections of Section 2 are “equally binding on state
and federal courts,” the federal courts must have independent jurisdiction.97
The Court then applied the “well-pleaded complaint rule,”98 and interpreted
the word “controversy” in Section 4 to mean the underlying state court litigation.99 Under this interpretation, courts can “look through” the four corners of the Section 4 petition to consider any underlying state court complaint.100
Applying this test, the Court found that federal jurisdiction did not lie
because Discover Bank’s original complaint did not invoke a federal
claim.101 The majority rejected a broader “look through” to the controversy
subject to arbitration, which would have included the federal law counterclaims.102 The majority, in particular, expressed concerns that even if the
federal court could order arbitration of the federal law claims, it could not
also order arbitration of the state-law claims.103 The Court also considered
how this rule would apply in cases with no state court complaint. If no
state-court litigation existed (i.e., the Section 4 petition filing occurred prior
to the state-court complaint filing), the federal court could “look through”
the Section 4 petition to the arbitral controversy.104
2.
The Dissenting Opinion
The dissenting opinion of Justice Roberts105 agreed that courts should
employ some type of “look through” but argued that the word “controver96
Id. at 57-58.
Id. at 59 (citing Southland Corp. v. Keating, 465 U.S. 1, 12 (1984)).
98 Id. at 59-60 (quoting Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 152 (1908)).
99 Id. at 62-63.
100 Vaden, 556 U.S. at 66 (quoting 9 U.S.C. § 4 (2012)).
101 Id.
102 Id. at 66-68.
103 See id. at 69-72 & n.19. Under the terms of the contract as presented, in the Court’s opinion, the
controversy appears to be arbitrable; however, the federal court cannot have partial jurisdiction. In dicta,
the majority opinion questions why Discover Bank did not simply take advantage of the arbitration
mechanisms available under state law. The Court states that the substantive law found in Section 2 of
the FAA makes arbitration agreements valid and “enforceable” in state court, and that Maryland has a
statute similar to Section 4 of the FAA. Id. at 71.
104 Id. at 65-66.
105 Roberts’s opinion is joined by Justices Stevens, Breyer, and Alito. Id. at 72 (Roberts, C.J.,
concurring in part and dissenting in part).
97
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sy” in FAA Section 4 encompassed the entire arbitral controversy.106 The
dissent noted that in other parts of the FAA, the word “controversy” meant
the “‘controversy’ subject to arbitration.”107 This broader approach would
be more resistant to party manipulation and a race to the courthouse.108
The dissent also made a second textual argument based on the use of
the subjunctive “would have” language: “§ 4 does not speak of actual jurisdiction over pending suits; it speaks subjunctively of prospective jurisdiction over ‘the subject matter of a suit arising out of the controversy between
the parties’” and not of “a particular complaint.”109 The dissent then noted
the discrepancy between the Vaden case and the multitude of cases where
litigants file Section 4 petitions before any party has had the chance to file a
lawsuit.110 In those cases, the rule appears to be different, and courts may
consider the entirety of the controversy, which would have made Vaden a
different case had no complaint ever been filed.111
3.
Analysis of the Vaden Decision
The majority and dissenting opinions in Vaden raise serious questions
about the treatment of Section 4 petitions in the federal courts. Both opinions make implicit policy choices, many of which are inconsistent with
articulated policy choices in other arbitration cases.
The Court assumes that rules regarding complaints and removal apply
to the “look through” analysis. By invoking the well-pleaded complaint
rule, the Court essentially treats the Section 4 petition as either a complaint
(in an original action) or a notice of removal (in a state-court action).
Any number of reasons supports the Court’s application of the wellpleaded complaint rule in this instance. The rule is established and familiar
to courts, litigants, and parties. As the Court noted, lower courts utilize the
rule to determine if federal question jurisdiction exists in every other situation. The test is also a familiar, bright-line test that is easy to administer.
The Court, however, did not cite or otherwise acknowledge that Section 4 applications should be treated as motions under Section 6—not complaints or removal actions. The omission of any reference to Section 6 is
significant. Congress designed the application process to be a simplified
procedure that would aid the parties in efficient resolution of their disputes
106 See Vaden, 556 U.S. at 72-73. The dissent noted that Vaden could just have easily filed her
claim first or sought a declaratory action, thus making the case a federal question case. Id. at 75. The
likelihood that Vaden would have affirmatively brought a suit knowing that she owed money on the
account is unclear.
107 Id. at 74.
108 See id. at 75-76.
109 Id. (quoting 9 U.S.C. § 4 (2012)).
110 Id. at 76-77.
111 Id. at 77.
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with limited court involvement.112 As the Hertz decision recognized, simple
jurisdictional rules encourage the efficient resolution of these matters so
that a decisionmaker can move on to the merits of the dispute.113 The procedural mechanisms of the FAA, too, intend liberal access to the courts, as
noted in the Cortez Byrd case, discussed above.114
By applying the well-pleaded complaint rule to Section 4 petitions, the
Court is applying litigation rules to an arbitration system. The result is
needless complication of the process and promotion of gamesmanship that
would needlessly waste time, money, and judicial resources.
Reading the “controversy” language broadly would promote the goals
of enforcing arbitration agreements, simplify the court intervention, and
resolve disputes more efficiently. The dissent’s broad reading of “controversy” to encompass the arbitral dispute better serves these goals than limiting a court’s focus to the Section 4 petition and a state-court complaint.
The Court’s ruling that a limited “look through” applies to incorporate
the well-pleaded complaint serves none of these policy goals. First, a significant portion of arbitration agreements may not be enforced under the wellpleaded complaint rule. Parties in cases, such as Vaden, that begin in state
court under state-court theories of recovery could never access the federal
forum for the protection of rights under the FAA. Although parties in those
cases could always petition the state courts, state courts are less predictable
in ordering cases to arbitration, compared to federal courts.
Further, layering the well-pleaded complaint rule on top of the Section
4 analysis complicates the process when the FAA intended to streamline
arbitration procedures. Complicating the process, then, impedes the third
arbitration policy—speedy access to the arbitral forum.
In addition to these complications, the Vaden decision leaves open additional questions. Namely, how does the Vaden analysis apply to questions
under diversity jurisdiction and cases involving enforcement of arbitration
awards if at all? The next Section considers those issues in greater detail.
B.
The Jurisdictional Morass: Divergent Lower Court Tests Post-Vaden
This Section considers post-Vaden jurisdiction in the following four
scenarios: (1) motions to compel based on federal questions (i.e., Vaden),
(2) motions to compel based on diversity, (3) motions to confirm or vacate
an award based on federal questions, and (4) motions to confirm or vacate
an award based on diversity. Given the complexity of jurisdictional legal
112
See supra Part I.C.3.
Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010) (“Complex jurisdictional tests complicate a case,
eating up time and money as the parties litigate, not the merits of their claims, but which court is the
right court to decide those claims.”).
114 See supra notes 68-74 and accompanying text.
113
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landscape in these cases, a uniform rule requiring that the courts consider
the arbitral controversy in all situations would simplify the area of law, be
easily administrable, and create predictable results for parties.
1.
Motions to Compel Arbitration Based on Federal Questions
Most cases involving federal question jurisdiction on a motion to
compel arbitration follow the Vaden holding. Cases involving state court
complaints employ the limited “look through” and follow the well-pleaded
complaint rule. For cases with no state-court action (the so-call “freestanding” motions), the courts generally employ a very broad “look through” to
the arbitral controversy. Vaden supports the broad “look through” in these
cases, but the cases illustrate the unnecessary dichotomy between cases
involving a state court complaint and those that do not.
A recent Eleventh Circuit case is illustrative because it involves both
freestanding and non-freestanding claims. Community State Bank v.
Strong115 involved a dispute between a payday loan company and borrowers.116 The borrowers filed a class action lawsuit under Georgia’s state usury
laws in Georgia state court.117 The lenders served a notice of intent to arbitrate on the borrowers, which the borrowers rejected.118 The lenders later
filed a Section 4 petition in federal court under the FAA to compel arbitration.119 The lenders contended that the Federal Deposit Insurance Act fully
preempted the state-court complaint, thus giving the federal court jurisdiction.120
The Strong case involved “freestanding” and “non-freestanding”
claims because some of the petitioners were defendants in the state court
action, while others were not.121 For the “non-freestanding” parties (i.e., the
parties to the state-court complaint), the Vaden analysis controlled.122 As to
the “freestanding” petitioners (those not part of the state-court litigation),
the court recognized that it must still “look through” to “something,” which
the court determined to be the “full-bodied controversy” between the par115
651 F.3d 1241 (11th Cir. 2011).
Id. at 1248-49 (stating that this type of loan is commonly called a “payday” loan).
117 Id. at 1249-50 (“Strong agreed that ‘[a]ny controversy or claim between me and the Lender,
Cash America, or any employees . . . arising out of or in any way relating to this Note and my loan
relationship with Lender (including this arbitration agreement) shall be settled by binding arbitration.’”).
In addition, the plaintiffs alleged less than $75,000 in damages and did not include any non-diverse
parties. Id. at 1250.
118 Id. at 1250.
119 Id.
120 Id.
121 Strong, 651 F.3d at 1251-52, 1254 (“[W]e have divided the Petitioners into two distinct groups,
because our judgment differs as to each group.”).
122 Id. at 1253, 1261.
116
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ties, to determine “whether any hypothetical claims arising out of that controversy would support federal jurisdiction.”123 If so, then the district court
“may entertain the petition and, if warranted, compel arbitration of the entire controversy.”124
For the “freestanding” arbitration parties, the court considered the fullbodied controversy as described and the attachments to the application.125
The court found proper jurisdiction because the Section 4 petition involved
a federal banking claim.126 The court, however, did not address the jurisdiction of the “non-freestanding” party because of the collateral estoppel effect
of a different, previous lawsuit.127 Were it not for the successful defense of
collateral estoppel, the court might have required arbitration for the “nonfreestanding” parties but not the “freestanding” parties, even though both
sets of parties participated in the same transaction.
This case illustrates one of the biggest challenges with the Vaden rule,
namely the unsupportable differences between “freestanding” and “nonfreestanding” parties. If collateral estoppel did not apply and the court applied the well-pleaded complaint rule to the “non-freestanding” parties, the
banks not part of the state-court lawsuit would arbitrate their claims while
the parties to the state-court lawsuit would not (if the court determined that
federal law did not preempt the Georgia complaint). And yet, no real difference exists in the underlying dispute, other than a race to the courthouse.
These differing outcomes are the direct result of the Vaden rule, which requires different treatment of similar parties based on the presence, or lack
thereof, of state-court litigation.128 Numerous district court opinions demonstrate the different treatment between the “freestanders” and “nonfreestanders.”129 Vaden, then, creates diverging tests for “freestanding” par123
Id. at 1254-55 (second emphasis added).
Id. at 1255.
125 Id. at 1257.
126 Id. at 1259-61.
127 Strong, 651 F.3d at 1264-65. In the state court, the defendant bank engaged in various discovery
abuses, resulting in the court’s dismissal of the arbitration affirmative defense. The federal court applied
preclusion principles to the Georgia court’s determination with respect to the denial of arbitration. Id.
128 After the Strong decision, the Fourth Circuit addressed a similar issue in Cmty. State Bank v.
Knox, 523 F. App’x. 925 (4th Cir. 2013). The Knox case similarly involved “freestanding” petitioners
and “non-freestanding” petitioners. The Fourth Circuit found no jurisdiction on behalf of the “nonfreestanders” because, under Vaden, the state-court complaint did not support federal jurisdiction. Id. at
929-30. With respect to the “freestanders,” the court also found no jurisdiction, but under the reasoning
that no controversy existed between the parties and that the parties did not assert federal question claims
in their motion. Id. at 930-31.
129 E.g., Grant-Fletcher v. Collecto, Inc., No. RDB-13-3505, 2014 WL 1877410, at *1 (D. Md.
May 9, 2014) (finding jurisdiction in a federal question case regarding the Fair Debt Collection Act);
Masoner v. Educ. Mgmt. Corp., 18 F. Supp. 3d 652, 656 (W.D. Pa. 2014) (“In this case, the court has
federal claim jurisdiction, pursuant to 28 U.S.C. § 1331, because Masoner sued EDMC under Title VII
of the Civil Rights Act of 1964, The Equal Pay Act of 1963, and The Fair Labor Standards Act.” (citations omitted)).
124
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ties and “non-freestanding” parties when the presence of a state-court complaint does not warrant such differing treatment.
2.
Motions to Compel Arbitration Based on Diversity
The Vaden decision does not give any specific guidance on how courts
should determine whether diversity jurisdiction exists in the federal courts
for Section 4 motions. This Subsection considers the elements of diversity
and amount in controversy separately.130
a.
Diversity of Citizenship
Unlike federal question cases, courts do not “look through” to determine the diversity of citizenship.131 This rule has roots in the 1983 Supreme
Court case Moses H. Cone Memorial Hospital v. Mercury Construction
Co.132 Moses H. Cone involved a “non-freestanding” Section 4 petition involving diverse parties, while other non-diverse parties were not included in
the petition.133 The Supreme Court did not discuss whether jurisdiction was
proper, but considered the petition on its merits.134 Lower courts, then, interpreted the Court’s silence as creating a “rule” that only the named parties
to the petition determine complete diversity.135
In 2010, the Eighth Circuit case Northport Health Services of Arkansas, LLC v. Rutherford136 considered whether Vaden changed this
longstanding “rule.” Northport filed a motion to compel and only included
diverse parties in the motion, despite the presence of non-diverse parties in
an underlying state-court action.137 The court rejected the argument that
Vaden required the court to “look through” to the state-court action to de130 Of course, any number of courts (especially at the trial level) simply assert that jurisdiction
exists without delving into any of these particulars. See, e.g., Organizational Strategies, Inc. v. Feldman
Law Firm LLP, No. 13-764-RGA, 2014 WL 2453350, at *2 (D. Del. May 29, 2014) (“I note that it was
the Defendants who removed this case to federal court on the basis of diversity jurisdiction. Thus, ‘save
for such [arbitration] agreement,’ this Court would have had jurisdiction over the merits of the underlying dispute.” (citation omitted)); Alder Run Land, LP v. Nw. Natural Energy LLC, No. 3:13-222, 2014
WL 1758141, at *1 (W.D. Pa. Apr. 30, 2014) (“The Court exercises diversity jurisdiction under 28
U.S.C. § 1332(a) because the amount in controversy exceeds $75,000, exclusive of interests and costs,
and the suit is between citizens of different states.”).
131 Northport Health Servs. of Ark., LLC v. Rutherford, 605 F.3d 483, 486 (8th Cir. 2010) (citing
Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438, 445 (2d Cir. 1995)).
132 460 U.S. 1 (1983).
133 Id. at 4-7.
134 See id. at 7 & n.4, 29.
135 See e.g., Rutherford, 605 F.3d at 486.
136 605 F.3d 483 (8th Cir. 2010).
137 Id. at 485-86.
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termine if the parties are diverse.138 The court held that Vaden did not overrule the “rule” from Moses H. Cone sub silentio.139 Thus, relying on Moses
H. Cone, and not Vaden, the court held that diversity jurisdiction should be
determined solely by the parties named in the Section 4 petition and any
indispensible parties, not by the parties listed in the underlying state court
complaint.140 A recent Fourth Circuit case falls in line with Northport,141 as
do numerous district court cases.142
The lack of a “look through” for diversity purposes is in sharp contrast
to the test developed in federal question cases. The courts’ attempts at reading Vaden and Moses H. Cone together is understandable because the Supreme Court does not overrule itself sub silentio. The Vaden case, however,
is distinguishable as a federal question case, rendering Moses H. Cone as
simply inapplicable. Additional policy reasons support the failure to “look
through,” including simplicity of the test and the plaintiff’s ability to control the litigation.
Despite these benefits, on balance, a uniform test would provide greater stability at this crossroads of arbitration and litigation. Courts should
utilize the same “look through” analysis for both federal question and diversity cases. The text of the FAA does not distinguish between these bases
of jurisdiction, and the policies of efficiency and consistency suggest that a
uniform rule of considering the arbitral controversy in all cases would better serve the arbitration system.
b.
Amount in Controversy
Courts have established diverging tests to determine the amount in
controversy on a motion to compel. For example, the Eighth Circuit adopted a “look through” analysis for this requirement in CMH Homes, Inc. v.
138
Id. at 490-91.
Id. at 490 (“Thus, the representatives’ contention requires us to assume both that the Court
overlooked a serious diversity jurisdiction issue in Moses H. Cone and then implicitly overruled Cone’s
jurisdictional underpinnings in Vaden. This is contrary to well-established principles. The Supreme
Court ‘does not normally overturn, or so dramatically limit, earlier authority sub silentio.’” (quoting
Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 18 (2000))).
140 Id. at 490-91.
141 Home Buyers Warranty Corp. v. Hanna, 750 F.3d 427, 434-35 (4th Cir. 2014). Prior to this
case, the district courts in the Fourth Circuit came to differing conclusions on whether to “look through”
to the state court action to determine whether diversity of citizenship exists. See THI of S.C. at Magnolia
Manor-Inman, LLC v. Gilbert, No. 7:13-cv-02929-GRA, 2014 WL 1284837, at *3 (D.S.C. Apr. 1,
2014) (citing split within the district).
142 See, e.g., Golden Gate Nat’l Senior Care, LLC v. Addison, No. 14–mc–0421, 2014 WL
4792386, at *6 (M.D. Pa. Sept. 24, 2014) (refusing to apply Vaden’s “look through” to diversity cases);
GGNSC Vanceburg, LLC v. Hanley, No. 13-106-HRW, 2014 WL 1333204, at *4-5 (E.D. Ky. Mar. 28,
2014); Sun Healthcare Grp., Inc. v. Dowdy, No. 5:13-CV-00169-TBR, 2014 WL 790916, at *4 (W.D.
Ky. Feb. 26, 2014) (following Northport).
139
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Goodner.143 The test, similar to the Vaden test, allows the court to consider
the amount in controversy as framed in the state-court complaint.144 The
court held that Vaden promotes this rule to preserve the plaintiff’s intent to
be in state court.145 The court recognized that this rule is in tension with the
Northport holding that the “look through” doctrine does not apply to determine diversity.146 The Eighth Circuit found that the diversity and amount in
controversy requirements met different goals, so treating them differently
was justified.147 The court held that Vaden extended to the amount in controversy requirement while Moses H. Cone applied to the diversity requirement.148 This reasoning, however, leaves much to be desired. The differences between the amount in controversy requirement and the diversity
requirement do not justify two divergent tests. A unified “look through” test
would provide needed efficiency and consistency for both requirements
while preserving the benefits of “look through” for the amount in controversy requirement. Amount in controversy protects the jurisdiction of the
federal courts by ensuring only high-dollar claims are heard in federal
court. Applying a “look through” for the amount in controversy in arbitration cases would further this policy goal.
In contrast, the Ninth Circuit did not apply any type of “look through”
test in Geographic Expeditions, Inc. v. Estate of Lhotka,149 a wrongful death
suit originally filed in California state court. After an unsuccessful motion
to compel in state court, GeoEx filed a Section 4 motion in federal court.150
The district court denied the motion because the case did not meet the
143 729 F.3d 832 (8th Cir. 2013). The case involved a class action case brought in Arkansas state
court alleging state law claims for consumer practices violations in connection with the purchase of
motor homes. In an attempt to avoid federal jurisdiction, the plaintiffs stipulated that damages would not
exceed $75,000 for any individual class member or more than $4,999,999 for the entire class. The home
builders filed a Section 4 motion in federal court on diversity grounds. The district court held that jurisdiction under Section 4 was improper because the amount-in-controversy requirement was not met. Id.
at 833-34.
144 Id. at 836 (“We think it follows from Vaden that the district court in this case properly ‘looked
through’ to the underlying controversy between the parties to determine the amount in controversy.”).
145 See id. (citing Vaden v. Discover Bank, 556 U.S. 49, 68 (2009)).
146 Id. (“There are sound reasons for limiting Rutherford and distinguishing between diversity of
citizenship and amount in controversy when applying § 4.”).
147 According to the court, the purpose of the diversity rule is to protect against bias towards outof-state litigants. Id. at 837 (quoting Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 55354, 566 (2005)). The amount-in-controversy requirement, however, has its roots in determining if a
claim is significant enough for the courts to consider. Id. (quoting Exxon Mobile, 545 U.S. at 562). The
court does not explain how the dollar amount of a matter makes it significant or not. While I do take
issue with the idea that a dispute is only as significant as the dollar amount attached to it, this issue is
well beyond the scope of the Article and will not be discussed here.
148 Id. at 836-39.
149 599 F.3d 1102 (9th Cir. 2010).
150 Id. at 1105-06.
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amount in controversy under the preponderance standard.151 On appeal, the
Ninth Circuit held that the preponderance standard did not apply because
the motion was an original action, not the removal of a state court action.152
Therefore, the Ninth Circuit applied the legal-certainty standard that normally applies to complaints.153 The court instructed that the determination
be made on the face of the Section 4 petition without “looking through” to
the underlying action.154 The Ninth Circuit relied on pre-Vaden case law
from other circuits to reach this decision.155
Three years later, however, in an unpublished decision, the Ninth Circuit applied a “look through” analysis in a “freestanding” Section 4 petition
to determine the amount in controversy. In Greystone Nevada, LLC v. Anthem Highlands Community Ass’n,156 the court considered the value of the
“underlying substantive claims”157 and allowed for the aggregation of individual claims in this multi-party action.158 The Ninth Circuit’s two cases are
diametrically opposed. Even if courts should treat “freestanding” and “nonfreestanding” cases differently, the difference (under Vaden) concerns the
extent of the look through. In Greystone, then, the “freestanding” claims
receive “look through” treatment while “non-freestanding” claims do not.
Neither Vaden nor other case law supports the inconsistent rulings.
The Eleventh Circuit took yet another approach. In American General
Financial Services of Alabama, Inc. v. Witherspoon,159 the court considered
the burden of proof for determining the amount in controversy when a statecourt action already exists.160 Unlike the Ninth Circuit, the Eleventh Circuit
utilized the removal standard requiring the movant to prove the amount in
controversy “by a preponderance of the evidence.”161
151
Id. at 1106.
Id. at 1106-07.
153 Id. at 1107.
154 See id. at 1107-08.
155 Geographic Expeditions, 599 F.3d at 1107 (citing Woodmen of the World Life Ins. Soc’y v.
Manganaro, 342 F.3d 1213 (10th Cir. 2003); Doctor’s Assocs., Inc. v. Hamilton, 150 F.3d 157 (2d Cir.
1998)).
156 549 F. App’x 621 (9th Cir. 2013).
157 Id. at 624.
158 Id. (“The HOAs’ potential lack of standing does not preclude aggregation of the homeowners’
claims for purposes of calculating the amount in controversy. To repeat, standing is personal to the
party. It does not affect the value of the object of the litigation or the value of the underlying substantive
claims in diversity actions for injunctive relief, declaratory relief, or to compel arbitration.” (citations
omitted)).
159 426 F. App’x 781 (11th Cir. 2011) (per curiam).
160 See id. at 781-83. The Witherspoon case is interesting in that the parties subject to the Section 4
motion were actually the state-court defendant and a third-party defendant, and the claim subject to
arbitration was the third-party complaint. Id. at 781-82. The court distinguished this case from Vaden on
the basis of the third-party complaint.
161 Id. at 782.
152
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Given the limited holding of Vaden, the courts have struggled to extend the holding in diversity cases. These diverging tests and differing burdens of proof illustrate the problem. A unified and simplified test will greatly ease the burden on the courts and the parties in these cases.
3.
Motions to Confirm or Vacate an Award Based on Federal Questions
Because the Vaden decision involved a motion to compel, the Court
was not given a chance to address jurisdictional standards for post-award
issues. Few clear jurisdictional tests emerge in this area of the law. This
Subsection and the one that follows consider the diverging tests the courts
have used.
At this time, no precedential circuit court authority exists on federal
question jurisdiction for motions to confirm or vacate. Given the lack of
guidance, district courts have created three different approaches, each with
its own flaws.
a.
Manifest Disregard of Federal Law as Grounds for Federal
Court Review
Prior to 2008, some courts found federal question jurisdiction when
the petitioner claimed the arbitrator manifestly disregarded federal law.162
The courts reasoned that if they were asked to determine if an arbitrator
manifestly disregarded federal law, then the court would be engaging in an
analysis of federal law.163 In 2008, however, the Supreme Court in Hall
Street Associates, L.L.C. v. Mattel, Inc.164 cast doubt on the availability of
review for manifest disregard. Many courts then held that federal court jurisdiction could not be predicated on manifest disregard of a federal law.165
162 See, e.g., Fox v. Faust, 239 F. App’x 715, 717 nn.2-3 (3d Cir. 2007) (finding that the subject
matter of the dispute may not confer federal question jurisdiction, but suggesting the possibility that an
arbitrator manifestly disregarding federal law would be a grounds for review conferring subject matter
jurisdiction, without deciding the issue because it was inapplicable to the case); Greenberg v. Bear,
Sterns & Co., 220 F.3d 22, 27 (2d Cir. 2000) (holding that review for manifestly disregarding federal
law bestows federal court jurisdiction).
163 See Greenberg, 220 F.3d at 27.
164 552 U.S. 576 (2008).
165 See, e.g., Royal Bank Am. v. Kirkpatrick, Nos. 11-1058, 11-1112, 2011 WL 4528349, at *3-4
(E.D. Pa. Sept. 30, 2011) (citing Hall St. Assocs., 552 U.S. at 584-85). Other courts consider this to be
an open question. See, e.g., Northland Truss Sys., Inc. v. Henning Constr. Co., 808 F. Supp. 2d 1119,
1122 (S.D. Iowa 2011) (noting that pre-Vaden Eighth Circuit law was ambiguous on the availability for
federal question review based on an arbitrator manifestly disregarding federal law).
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These courts reasoned that if manifest disregard was not a proper grounds
for review, then it could not possibly act as a jurisdictional grant.166
Using the manifest-disregard standard as a basis for jurisdiction is
misguided. First, the Supreme Court does not recognize it as a ground for
review, and if it is not a valid ground for review, it cannot bestow jurisdiction. And second, jurisdiction under manifest disregard would create independent jurisdiction under the FAA, and the Supreme Court has repeatedly
held that the FAA does not bestow independent jurisdiction.167
b.
Federal Court Pleading Review
Some courts refuse to extend Vaden to motions to vacate or confirm
and simply consider the documents before the court.168 In Ball v. Stylecraft
Homes,169 the Fourth Circuit held that Vaden does not extend to motions to
vacate.170 The court held that because the federal court documents did not
establish a federal question on the face of the motion, jurisdiction did not
lie.171 An unpublished Second Circuit decision, Bittner v. RBC Capital
166 E.g., JDS Uniphase Corp. v. Finistar Corp., No. 11-1213, 2012 WL 707082, *3 (W.D. Pa. Mar.
5, 2012). Other courts still appear to allow manifest disregard as a grounds for jurisdiction. See, e.g.,
Sonic Automotive, Inc. v. Price, No. 3:10-CV-382, 2011 WL 3564884, at *8 (W.D.N.C. Aug. 12, 2011)
(“Petitioner seeks vacatur based on the Arbitrator’s alleged disregard of . . . [federal law]. These grounds
will require the Court to address and resolve substantial questions of federal law. Thus, the Petition
provides the requisite independent basis for subject matter jurisdiction . . . .”); Sharlands Terrace, LLC
v. 1930 Wright St., LLC, No. C-11-2503-EDL, 2011 WL 3566816, at *4 (N.D. Cal. Aug. 12, 2011)
(“However, a federal court has subject matter jurisdiction over a petition to vacate an arbitration award
where the basis for vacating an arbitration award is that the arbitrator manifestly disregarded federal
law. An exception to this rule exists where the allegation that the arbitrator manifestly disregarded
federal law is ‘patently without merit.’” (citation omitted) (citing Carter v. Health Net of Ca., Inc., 374
F.3d 830, 836-37 (9th Cir. 2004))).
167 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983) (“The
Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of
federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it
does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise.”
(citation omitted)); see Hall St. Assocs., 552 U.S. at 582 (citing Moses H. Cone, 460 U.S. at 25 n.32)
(noting that the FAA provides “no federal jurisdiction but rather requir[es] an independent jurisdictional
basis); see also Cmty. State Bank v. Strong, 651 F.3d 1241, 1252 (11th Cir. 2011) (“It is a longaccepted principle that the FAA is non-jurisdictional: The statute does not itself supply a basis for federal jurisdiction over FAA petitions.”).
168 See Ball v. Stylecraft Homes, LLC, 564 F. App’x 720, 721 (4th Cir. 2014) (per curiam).
169 564 F. App’x 720 (4th Cir. 2014) (per curiam).
170 Id. at 721 (“‘Under the longstanding well-pleaded complaint rule . . . a suit arises under federal
law only when the plaintiff’s statement of his own cause of action shows that it is based upon federal
law.’” (quoting Vaden v. Discover Bank, 556 U.S. 49, 60 (2009))).
171 Id. at 722-23 (finding the pleadings only established state law claims). This rule, at least, is
consistent with the Fourth Circuit’s decision in Home Buyers Warranty Corp. v. Hanna, which also
rejects a “look through” analysis in diversity cases. See 750 F.3d 427, 434-35 (4th Cir. 2014).
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Markets,172 similarly held that Vaden only deals with motions to compel.173
These cases nearly foreclose federal jurisdiction on motions to conform or
vacate because the parties are not asking the court to determine a matter of
federal law outside of the arbitration issue.
A number of district courts similarly refuse to apply a “look through”
to motions to vacate.174 In one case, Crews v. S&S Service Center Inc.,175 the
court expressly rejected the idea that the subject of the arbitration could
serve as grounds for federal question jurisdiction.176 The court stated that,
unlike Section 4, Section 10 dealing with vacatur does not contain the “save
for” language found so critical in Vaden.177 The court acknowledged that
this rule would virtually eliminate all jurisdiction on vacatur motions,178
except (1) federal question cases previously stayed for arbitration, (2) diversity cases, and (3) maritime cases.179 The Crews court further recognized
that it was creating an artificial distinction between federal question and
diversity cases.180
The result of not using a “look through” analysis on motions to vacate
creates yet another inconsistency: cases that would have federal question
jurisdiction on a motion to compel do not have jurisdiction on a motion to
vacate. Neither scenario involves courts applying federal law—other than
the FAA—so differing treatment is puzzling.
172
331 F. App’x 869 (2d Cir. 2009).
The court, for argument’s sake, also noted that even if it were to apply a “look through,” the
underlying dispute did not raise a federal question. Id. at 871 (“But even assuming, arguendo, that we
may ‘look through’ the petition in this case and examine whether the parties’ underlying dispute raises a
federal question, federal jurisdiction would not lie. The underlying dispute is a contract question that
raises only state law questions and therefore does not give rise to federal-question jurisdiction.”).
174 See Royal Bank Am. v. Kirkpatrick, Nos. 11-1058, 11-1112, 2011 WL 4528349, at *3-4 (E.D.
Pa. Sept. 30, 2011) (finding no federal question jurisdiction when the arbitration involved federal banking laws but the plaintiff’s complaint only alleged state-law claims); Powerweb Energy, Inc. v. GE
Lighting Sys., Inc., No. 10-2652, 2011 WL 3902761, at *3-4 (E.D. Pa. Sept. 2, 2011) (finding no federal
question jurisdiction for an arbitration involving issues of trademark law); Diversified Emp. Solutions,
Inc. v. Pawloski, 790 F. Supp. 2d 655, 657 (N.D. Ohio 2011) (“Furthermore, if the independent ground
for subject matter jurisdiction is a federal question, it ‘must be disclosed on the face of the complaint,
unaided by the answer.’” (quoting Ford v. Hamilton Invs., Inc., 29 F.3d 255, 258 (6th Cir. 1994))).
175 848 F. Supp. 2d 595 (E.D. Va. 2012).
176 Id. at 599-600.
177 Id. at 599.
178 See id.
179 Id. at 600.
180 Id. (“Although, this Court recognizes that this approach ‘creates a totally artificial distinction
based on whether a dispute is subject to pending federal litigation,’ the Court believes it is necessitated
by the fact that § 10 does not have § 4’s unique jurisdictional hook.” (citation omitted) (quoting Vaden
v. Discover Bank, 556 U.S. 49, 65 (2009))).
173
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A UNIFORM THEORY OF FEDERAL COURT JURISDICTION
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“Look Through” to the Award or the Subject of the Dispute
Only a minority of courts will consider information regarding the merits of the arbitration. If the parties attach the award as an exhibit to the motion, some courts will consider it,181 and such review would be consistent
with general motion practice.182
Instead, courts should be “looking through” to the merits of the underlying arbitration to determine if federal court jurisdiction exists. Vaden allows a “look through” to a state court action in a “non-freestanding” claim
and a general “look through” to the arbitrable controversy in “freestanding”
claims.183 In one unreported case, the court explicitly “looked through” to
the subject of the arbitration after citing Vaden in a case involving a “freestanding” motion.184 While this reading of Vaden is consistent among FAA
motions, a broader, more consistent test would better eliminate the confusion on jurisdictional questions.
4.
Motions to Confirm or Vacate an Award Based on Diversity
Little case law exists on the issue of diversity jurisdiction for postarbitration motions pre- or post-Vaden. With respect to party diversity, most
courts simply determine whether the parties to the petition are diverse without any explanation.185
In contrast, three tests (pre- and post-Vaden) have emerged to determine the amount in controversy. The first approach is the award approach,
in which courts determine the amount in controversy by the amount of the
181 See Jackson v. Sleek Audio, LLC, No. 13-80725-CIV, 2014 WL 1018031, at *1-2 (S.D. Fla.
Mar. 17, 2014) (considering the attached award but denying jurisdiction on the basis that the arbitration
did not involve a federal question).
182 See GSW, Inc. v. Long Cty., Ga., 999 F.2d 1508, 1515 & n.11 (11th Cir. 1993) (“We rely on
the facts alleged in the complaint and the exhibits attached thereto.”); Jackson, 2014 WL 1018031, at *2
(“Ordinarily, the review on a motion to dismiss is limited to the complaint and the attached exhibits.”).
183 See supra Section II.A.3.
184 BBVA Sec. of P.R. v. Cintron, No. 10-1927 (JAG), 2012 WL 2002304, at *3-4 (D.P.R. June 4,
2012) (“Even if we were to ‘look through’ BBVA’s motion and assess whether Cintrón’s petition to
arbitrate presents a federal question, as the Supreme Court did in Vaden in the context of a § 4 motion to
compel, the result would not change.”).
185 See, e.g., Caro v. Fid. Brokerage Servs., LLC, No. 3:12-CV-1066 (CSH), 2013 WL 3929708, at
*2-7 (D. Conn. July 26, 2013) (examining citizenship of limited liability company and concluding that
diversity jurisdiction did not exist); Intervest Int’l Equities Corp. v. Aberlich, No. 12-CV-13750, 2013
WL 1316997, at *2-4 (E.D. Mich. Mar. 29, 2013) (finding no diversity after joining an indispensable
party who destroyed diversity); Stebbins v. Texas, No. 3:11-CV-2227-N (BK), 2011 WL 6130403, at *2
(N.D. Tex. Oct. 24, 2011) (finding no subject matter jurisdiction because the state of Texas is not a
“citizen” for diversity purposes).
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award.186 When the award is more than $75,000, courts easily find jurisdiction.187 The biggest criticism of the award approach is that cases involving a
“defense award” (i.e., no money damages) would never satisfy the jurisdictional requirement.
Under the second approach—the demand approach—the court considers whether the claimant demanded an amount that meets the amount in
controversy requirement.188 The demand approach would still allow jurisdiction for cases involving defense awards. Smith v. Tele-Town Hall, LLC189
illustrates a post-Vaden case utilizing the demand approach.190 The case
involved a business dispute in which Tele-Town Hall sought $500,000 in
arbitration damages.191 Ultimately, the arbitrator awarded Smith a defense
award and $41,000 in forum fees and costs.192 Smith moved to confirm the
award by filing a Section 9 motion in federal court, and the court found
jurisdiction proper under the demand approach.193 The court reasoned that
the demand approach is consistent with Section 4, and it protects jurisdiction in cases of low awards.194 The court also rejected the “legal certainty”
rule—usually applied in diversity cases195—in favor of the demand rule.196
186 See Baltin v. Alaron Trading Corp., 128 F.3d 1466, 1472 (11th Cir. 1997); Ford v. Hamilton
Invs., Inc., 29 F.3d 255, 259-60 (6th Cir. 1994).
187 See, e.g., Lakeshore Eng’g Servs., Inc. v. Target Constr., Inc., 2 F. Supp. 3d 1038, 1044 (E.D.
Mich. 2014) (“However, upon review of Plaintiff’s Application it is clear that diversity jurisdiction
exists as Plaintiff is a Michigan corporation, Defendant is a Nevada corporation and the Arbitration
Award provides for net damages against Target in amount of $2,525,666.30.”); Bd. of Trs. of Mun.
Elec. Util. v. Miron Constr. Co., No. 13-CV-2080-LRR, 2014 WL 789200, at *1, *6 (N.D. Iowa Feb.
26, 2014) (finding diversity jurisdiction in a case in which an arbitrator awarded damages of approximately $275,000); Pochat v. Merrill Lynch, Pierce, Fenner & Smith, Inc. No. 12-22397-CIV, 2013 WL
4496548, at *1, *5 (S.D. Fla. Aug. 22, 2013) (finding diversity jurisdiction in a case involving an arbitration award exceeding $800,000); Tucson Elec. Power Co. v. Daimler Capital Servs. LLC, No. CV12-003230TUC-JGZ, 2013 WL 321877, at *3 (D. Ariz. Jan. 28, 2013) (“The amount in controversy
exceeds $75,000.00 as TEP seeks to confirm an appraisal award of $184,700,000.”); Trehel Corp. v.
W.S. Agee Grading Contractor, Inc., No. 1:12-cv-0054-WSD, 2012 WL 1080586, at *3 (N.D. Ga. Mar.
30, 2012) (“The FAA does not supply a basis for jurisdiction. . . . This action involves the confirmation
of a $370,551.29 arbitration award, which exceeds the jurisdictional minimum of $75,000. The Court
has subject-matter jurisdiction over this action.” (footnote omitted) (citations omitted)).
188 See Karsner v. Lothian, 532 F.3d 876, 883-84 (D.C. Cir. 2008); Theis Research, Inc. v. Brown
& Bain, 400 F.3d 659, 664-65 (9th Cir. 2005); Thames v. Woodmen of World Life Ins. Soc’y, No. 130063-WS-N, 2013 WL 4162257, at *2 & n.6 (S.D. Ala. Aug. 13, 2013) (summarily finding jurisdiction
on the basis of the amount in controversy demanded in the arbitration).
189 798 F. Supp. 2d 748 (E.D. Va. 2011).
190 Id. at 750.
191 Id. at 751.
192 Id.
193 Id. at 756.
194 Id. at 753-56.
195 The rule asks whether a “legal certainty” exists that the plaintiff will recover less than the
jurisdictional threshold. Baltin v. Alaron Trading Corp., 128 F.3d 1466, 1472 (11th Cir. 1997).
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The third approach is a mixed approach.197 Under the “mixed approach,” if the parties do not seek to reopen arbitration, then the court will
apply the award approach. If the parties do seek to reopen the arbitration,
then the court will apply the demand approach.
An interesting twist arises in the area of class action arbitrations. Under the most popular set of class arbitration rules, namely the American
Arbitration Association’s Supplementary Rules for Class Arbitrations,198
parties may seek interlocutory judicial review on two procedural rulings
before the arbitrator issues any type of monetary award.199 Under diversity
jurisdiction, these procedural “awards”200 do not contain any type of monetary award, so one might argue that the courts lack diversity jurisdiction for
failure to meet the amount in controversy. Courts, however, appear to “look
through” to the arbitration (although not using that language) to determine
whether the amount in controversy is met.201
Thus, no consistent test emerges in this area of the law. The differing
treatment of “defense awards” is particularly problematic. Under traditional
litigation rules (which the courts usually apply in these arbitration inquiries), federal courts do not lose diversity jurisdiction simply because a defendant won. The “award” approach, however, would do just that. The
“demand” approach is essentially a “look through” to the merits of the un-
196 Smith, 798 F. Supp. 2d at 755-56 (“[C]ourts should not ignore the broader context of the FAA
and the important relationship between arbitration and judicial resolution of disputes. . . . Ignoring the
underlying claims . . . divorces the judicial process from the arbitration process in a manner inconsistent
with the FAA.”).
197 See Sirotzky v. N.Y. Stock Exch., 347 F.3d 985, 989 (7th Cir. 2003); see also Peebles v. Merrill
Lynch, Pierce, Fenner & Smith Inc., 431 F.3d 1320, 1325-26 (11th Cir. 2005) (citing Baltin, 128 F.3d at
1472) (applying the demand approach after distinguishing Baltin as not having addressed a party seeking to reopen arbitration).
198 AM. ARBITRATION ASS’N, SUPPLEMENTARY RULES FOR CLASS ARBITRATIONS (2003) [hereinafter
CLASS
RULES],
https://www.adr.org/aaa/ShowPDF?url=/cs/groups/commercial/documents
/document/dgdf/mda0/~edisp/adrstg_004129.pdf.
199 The two procedural rulings include a ruling that the arbitration agreement allows a class proceeding to occur in the first instance (i.e., the “Clause Construction Award”) and a ruling that a class
may proceed under the facts before the arbitrator (i.e., the “Class Certification Award”). Id. rules 3, 5.
200 In a previous article, I argued that these types of interlocutory “awards” do not meet the definition of “award” under the FAA. Kristen M. Blankley, Did the Arbitrator “Sneeze”?—Do Federal
Courts Have Jurisdiction over “Interlocutory” Awards in Class Action Arbitrations?, 34 VT. L. REV.
493, 494-95 (2010) [hereinafter Blankley, Did the Arbitrator “Sneeze”?]. The Supreme Court, however,
in hearing a case involving a Clause Construction Award, demonstrates that these cases are ripe for
district court adjudication. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682-84
(2010). Although the Court’s majority opinion did not elaborate greatly on the appropriateness of jurisdiction, the majority opinion dismissed Justice Ginsburg’s strong dissent on the basis of jurisdiction. Id.
at 687.
201 See, e.g., W.C. Motor Co. v. Talley, 63 F. Supp. 3d 843, 848-51 (N.D. Ill. 2014) (finding
amount in controversy was not met because each individual plaintiff’s claim was less than $75,000,
even when factoring in the pro rata share of potential punitive damages and attorneys fees awards).
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derlying dispute, which is a standard that courts have only otherwise employed in “freestanding” claims.
C.
Post-Vaden Analysis
The clearest lesson to be drawn from the post-Vaden jurisprudence is
that no uniform test has emerged in any of the areas of federal jurisdiction.
Although not providing a jurisdictional test, the FAA contemplates some
form of federal court jurisdiction. The wide array of unpredictable tests
goes contrary to the policy reasons the Supreme Court discussed in the
Hertz case regarding simplicity and predictability for jurisdictional statutes.
Table 1 depicts the myriad tests developed in this area of law.
Table 1: Legal Tests for Determining Federal Court Jurisdiction in
Arbitration Cases
Courts are drawing artificial jurisdictional lines on qualities that do not
matter. Whether a claim is “freestanding” or “non-freestanding” can drastically alter whether a party has jurisdiction in the federal courts on a motion
to compel or a motion to confirm or vacate. The presence of state court
litigation, however, is not a salient fact. Whether parties have agreed to
arbitrate is an altogether different question than the merits of the underlying
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claims, and the fact of a state-court lawsuit should not substantively change
the analysis.
While some courts “look through” to the underlying controversy to determine the amount in controversy, they universally refuse to do so to determine if the parties are diverse. No court has attempted to explain the inconsistencies in the “look through” doctrine for these two different parts of
the same test. This lack of explanation likely results because in other litigation contexts, the courts only consider the parties to the lawsuit for diversity
purposes. The courts, however, should consider more deeply whether following litigation rules is the right choice in the arbitration context. In particular, the courts should consider the policy of efficiency and that parties
who agree to arbitrate should be able to arrive at the arbitral forum as
quickly and seamlessly as possible.
Further, other areas of arbitration law do not support the artificial distinction between “freestanding” and “non-freestanding” motions on a motion to compel or a motion to confirm or vacate. For example, when courts
make the substantive inquiry of determining whether parties to a contract
have agreed to arbitrate (i.e., the merits of the Section 4 petition), courts
must put aside the merits of the dispute and focus solely on the question of
whether the parties agreed to arbitrate.202 This concept, known as “arbitrability,” is based on the reading of the text of Section 4.203 Thus, in the arbitrability inquiry, only arbitration facts are considered; facts relating to the
underlying merits are not considered. In contrast, the jurisdictional inquiry
involves litigation facts, and not arbitration facts.
This distinction is yet another example of the lack of consistency
across arbitration law. Although the inquiries are different, the arbitrability
doctrine attempts to streamline the process and ensure that parties who
agreed to arbitrate have the opportunity to arbitrate. The varying tests for
jurisdiction, however, do not appear to be concerned with simplicity, efficiency, or enforcing agreements to arbitrate.
The differing tests in the area of post-arbitration review are perhaps
the least defensible. A sizeable number of courts appear to rule that federal
question jurisdiction does not, in all practicality, exist for motions to confirm, vacate, and modify.204 Those courts hold that no federal jurisdiction
exists because the court need not make a ruling on the underlying federal
law, but instead must only apply a “jurisdiction neutral” statute.205 This line
of precedent, however, is contrary to the text of the FAA as well as the
Court’s decision in Vaden. Vaden specifically allows jurisdiction in federal
question cases even though the court need not make any ruling on federal
202 See, e.g., Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443-46 (2006); Prima Paint
Corp. v. Flood & Conklin Mfg. Co., 388 U.S 395, 403-04 (1967).
203 Prima Paint Corp., 388 U.S at 403-04.
204 See supra Section II.B.3.b.
205 See supra Section II.B.3.b.
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law, other than the FAA. Further, the text of those sections clearly contemplates jurisdiction, and this interpretation partially nullifies the statutes.
The underlying purposes of the FAA are to make arbitration agreements enforceable as regular contracts and to enforce arbitral awards. Underlying these goals is the policy of efficient and inexpensive private dispute resolution. The current disparate systems in place for determining federal court jurisdiction defeat all of these goals. The courts are creating artificial roadblocks for having arbitration matters heard. Inconsistent tests and
unclear jurisdictional requirements increase time and expense litigating
jurisdictional issues before a court can entertain arbitration questions. The
current rules also encourage forum shopping and “racing to the courthouse,” both of which are litigation maneuvers that undermine process efficiency and create procedural roadblocks. A new jurisdictional framework
based on simplicity and predictability could eliminate all of these inconsistencies without requiring a statutory change to the FAA.
III. A NEW JURISDICTIONAL FRAMEWORK
Here is the new framework that this Article proposes: in all instances,
the federal court should “look through” the motion filed in federal court and
determine if the underlying arbitral controversy would be subject to federal
court jurisdiction. The proposal contains three critical components. First, it
would apply to all instances in which a party seeks jurisdiction in the federal courts under the FAA.206 Second, it would employ a “look through” analysis. Third, the courts would “look through” to the entire controversy to be
(or that was) arbitrated. Table 2 exemplifies how this proposal simplifies
the current law.
Table 2: Proposed Test for Determining Federal Court Jurisdiction in
Arbitration Cases
206 This proposal would also apply to some of the lesser-utilized motions in the FAA, such as a
motion to appoint an arbitrator under FAA Section 5.
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The judiciary can implement this proposal in two ways. First, the Supreme Court could modify the Vaden decision to require a “look through”
for all arbitration jurisdiction matters. Second, Congress could amend the
FAA to explicitly put this jurisdictional test into the statute.
The FAA’s text and policy support this proposal. Furthermore, its benefits outweigh any potential negative consequences from a change in the
jurisdictional jurisprudence. While this solution may be “imperfect” (as the
Court described the “nerve center” test), a single, simplified rule would be
“superior to” continuing down the road of using and creating diverging
jurisdictional tests.207
A.
Textual Basis
A strong textual basis exists for this Article’s common law proposal.
The textual basis stems from the language in Section 4 of the FAA. Under
Section 4, a court has jurisdiction to hear a motion to compel arbitration
when “save for such [arbitration] agreement, [the court] would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter
of a suit arising out of the controversy between the parties.”208 The dissenting Justices in Vaden correctly interpreted this language to mean that the
court should consider the whole controversy subject to arbitration, and not
simply a limited number of documents based on a race to the courthouse.209
The subjunctive tense use (i.e., “would have”) indicates that Congress intended that if litigants “would have” been able to bring the controversy in
federal court, then the court should have jurisdiction to hear the motion
before it. Determining whether a court “would have” jurisdiction over “the
subject matter of a suit arising out of the controversy” should be read to
determine the complete controversy to be arbitrated, and not anything less.
“Controversy” is not a defined term in the statute. The Vaden majority
viewed the “controversy” to mean the litigation based on the plaintiff’s
definition. The majority ignored the fact that Congress had also used the
term “civil action” in Section 4 and read both words to essentially mean the
same thing. “Controversy” and “civil action” should be defined differently
because the use of different words should signal different meanings.210 In
207
Hertz Corp. v. Friend, 559 U.S. 77, 93 (2010).
9 U.S.C. § 4 (2012).
209 See Vaden v. Discover Bank, 556 U.S. 49, 72-74 (2009) (Roberts, C.J., concurring in part and
dissenting in part).
210 See Lindsey v. Tacoma-Pierce Cty. Health Dep’t, 195 F.3d 1065, 1074 (9th Cir. 1999) (“[It is a]
basic principle of statutory construction that different words in the same statute must be given different
meanings.”); Boise Cascade Corp. v. EPA, 942 F.2d 1427, 1432 (9th Cir. 1991) (“Under accepted
canons of statutory interpretation, we must interpret statutes as a whole, giving effect to each word and
making every effort not to interpret a provision in a manner that renders other provisions of the same
statute inconsistent, meaningless or superfluous.”).
208
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this case, “civil action” should mean civil litigation while “controversy”
should be consistently read to be the arbitrable controversy.
The FAA uses the term “controversy” multiple other times, and every
other time, it refers to the entire subject matter of the arbitration.211 Perhaps
the clearest use of the word “controversy” is in Section 10 of the FAA. Under Section 10(a)(3), courts may vacate an arbitration award if an arbitrator
“refus[ed] to hear evidence pertinent and material to the controversy.”212 In
this context, “controversy” can only mean the subject matter of the arbitration. In addition, in Section 1, the definition of “maritime transaction” is a
“controversy [that] would be embraced within admiralty jurisdiction.”213
Again, “controversy” appears to mean the underlying dispute because it
refers to the underlying support for the admiralty jurisdiction. Also, Section
2 provides that “[a] written provision in any . . . contract evidencing a
transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction” shall be enforceable as any
other contract.214 “Controversy” in this context can also be read to mean the
subject matter of an arbitrable dispute. Further, under Section 5, a “party to
the controversy” may petition the court for an appointment of an arbitrator.215 The plain language of “controversy” in this context also indicates a
party to the arbitrable dispute because Section 5 usually applies to parties
who do not dispute their agreement to arbitrate but require the court’s assistance in determining who will be the arbitrator.
Statutory construction also encourages the reading of the entire statute
consistently, so the jurisdictional reading of Section 4 should apply equally
to all other sections of the FAA.216 The Cortez Byrd Court suggests that
venue for motions to compel should be consistent with the venue for motions to confirm or vacate.217 Further, the Court has previously ruled that the
language of Section 4 applies to all arbitration cases because “it is inconceivable that Congress intended the rule[s] to differ depending upon which
party to the arbitration agreement first invokes the assistance of a federal
court.”218
This Article’s proposal goes farther than simply adopting Vaden’s dissent. It extends the reasoning of the dissent to all motions under the FAA.
In doing so, federal court jurisdiction for arbitration matters would be sub211
See Szalai, supra note 8, at 345.
9 U.S.C. § 10(a)(3) (emphasis added).
213 Id. § 1.
214 Id. § 2 (emphasis added).
215 Id. § 5 (emphasis added).
216 Of course, Sections 9, 10, and 11 contain venue provisions; however, those venue provisions do
not impact the underlying jurisdiction of the courts. In addition, the Cortez Byrd Court indicated that
these venue provisions created a greater scope of possible federal courts to hear the motions, not a more
limited number. See Cortez Byrd Chips, Inc. v. Bill Harbert Constr. Co., 529 U.S. 193, 195 (2000).
217 See Cortez Byrd, 529 U.S. at 201.
218 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967).
212
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ject to a different test than federal jurisdiction generally, especially in cases
involving pending state-court litigation. The difference in the jurisdictional
tests, however, is not a valid criticism of the proposal. Instead, differing
jurisdictional tests would treat arbitration as a system outside of the litigation system that only requires minimal court intervention if the parties do
not abide by their contractual arrangements.
B.
FAA Policy Basis
1.
Overarching Policy Goals
This proposed test would serve the underlying policy goals of the
FAA, which include enforcing agreements to arbitrate, enforcing arbitrator
awards, and efficiency in dispute resolution. The Supreme Court places a
high priority on the efficiency of arbitration, noting that arbitration, “when
selected by the parties to a contract, [should] be speedy and not subject to
delay and obstruction in the courts.”219 A single, uniform test based on the
arbitration facts would remove most of the jurisdictional gamesmanship and
allow the courts to more easily determine the merits of the petitions. As a
result, courts could better fulfill their purpose under the FAA, which is to
provide limited but efficient assistance when parties resist their obligation
to arbitrate or do not voluntarily comply with an arbitrator’s award.
The FAA drafters did not intend for the traditional litigation rules to
apply to this area of the law.220 The FAA’s application process221 intended
for courts to use the motion process, as opposed to the complaint process,
for the purposes of efficiency. Having a simplified, inclusive test for jurisdictional purposes would better serve these policy goals.
2.
Encourages Predictability and Efficiency
This proposal would also create predictability for litigants and ease for
the courts. At present, the law regarding federal court jurisdiction involves
too many different questions depending on the circumstances of the case
and the rules of the court. With all of these jurisdictional questions, parties
currently waste significant time and money litigating issues ancillary to the
219
Id.; see also Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 685 (2010).
See supra notes 55, 74-80 and accompanying text.
221 See supra Section I.C.
220
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actual arbitration. These issues arguably also waste the courts’ time, and
having a simple jurisdictional test would better serve the courts.222
Congress enacted the FAA to aid parties who want to take advantage
of the benefits of arbitration.223 Predictable jurisdictional rules would aid the
parties because the process would be more efficient and cost effective.
Courts could apply an easy and uniform test to a wide variety of circumstances, and parties would have a clearer sense of when jurisdiction will lie
under the FAA. Utilizing a predictable and simple test will increase efficiency and prevent the costs of collateral litigation.
3.
Promotes Parties’ Freedom of Contract
This proposal also supports the strong arbitration policy goal of enforcing parties’ private contracts.224 Simplifying the court process would
increase efficiency and the courts could more easily determine questions at
the heart of the FAA, namely whether the parties agreed to arbitrate or
whether an award should be enforced. This proposal would cut through the
chaos that currently exists in the jurisdictional jurisprudence. Currently,
questions about jurisdiction have the potential to be embroiled in litigation
on the collateral issue of jurisdiction before reaching the important contract
questions the FAA intended to protect. A simplified jurisdictional test
would allow the courts to determine the important contract rights the FAA
sought to protect.
As a practical matter, parties do not always understand and consciously agree to all of the terms in their contracts. This is especially true of consumers and individual employees. A recent study by the Consumer Financial Protection Bureau stated that consumers are “generally unaware” of
arbitration clauses or the implications of those clauses in credit card agreements.225 The issues of bargaining power and understanding are complex,
and they will not be explored here. This Article relies on the assumption,
however flawed, that parties to contracts understand or at least have the
222
See Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010) (“Simple jurisdictional rules also promote
greater predictability. Predictability is valuable to corporations making business and investment decisions.”).
223 Southland Corp. v. Keating, 465 U.S. 1, 14 (1984).
224 Bowen v. Amoco Pipeline Co., 254 F.3d 925, 933 (10th Cir. 2001) (stating that the FAA’s
purpose is to “ensur[e] that private agreements to arbitrate are enforced according to their terms” (quoting LaPine Tech. Corp. v. Kyocera Corp., 130 F.3d 884, 888 (9th Cir. 1997)) (internal quotation marks
omitted)).
225 CONSUMER FIN. PROT. BUREAU, ARBITRATION STUDY: REPORT TO CONGRESS, PURSUANT TO
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT § 1028(a), at 11 (2015),
http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
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opportunity to understand, all of the terms therein, and that the contracts
will be enforceable if they are not unconscionable.226
4.
Discouraging Forum Shopping
The current system is flawed because either party can easily manipulate it. The Vaden case is a clear example of the way that the rules encourage forum shopping. If one party anticipates arbitration, the party resisting
arbitration may race to the state courthouse to file an action based on state
law. Under the current law, the federal forum is not available to hear a Section 4 motion because the claim would not satisfy the removal criteria. In
the same case, if the cardholder in Vaden had not filed suit, but Discover
Bank had simply filed a “freestanding” Section 4 motion, the federal court
could have heard the claim. Jurisdictional rules that turn on non-salient
facts (like the presence or absence of a state court complaint) encourage
jurisdictional gamesmanship. While no rule can completely eliminate
gamesmanship in forum shopping, rules that limit such games are beneficial. The Supreme Court has indicated that the application of the FAA
should not depend on which party “first invokes the assistance of a federal
court.”227 A clear, uniform rule would eliminate most, if not all, of these
types of procedural games.
5.
Federal Jurisdictional Policies
In addition to being consistent with arbitration policy, this test would
also be consistent with general, federal jurisdictional law and policy because it still relies on the traditional tests for federal question and diversity
jurisdiction. “Looking through” to the merits of the arbitral dispute would
still meet the policy goals underlying these jurisdictional tests. For cases in
which the arbitral dispute involves a federal question, federal courts should
be able to hear all of the motions relating to that case. The presence, or lack
thereof, of a federal claim in an original complaint in state court should not
be relevant.
Federal question jurisdiction should support a broader grant of arbitration jurisdiction because the court is interpreting federal law when it interprets the FAA. Federal courts should have an opportunity to interpret the
Federal Arbitration Act. They can only do so when they have jurisdiction.
226
For more information on the treatment of arbitration agreements as unconscionable, see Susan
Landrum, Much Ado About Nothing?: What the Numbers Tell Us About How State Courts Apply the
Unconscionability Doctrine to Arbitration Agreements, 97 MARQ. L. REV. 751 (2014).
227 Prima Paint Corp. v. Flood & Conklin Mfg. Corp., 388 U.S. 395, 404 (1967).
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For diversity cases, considering the arbitrable controversy also meets
the policies supporting diversity jurisdiction. Taking into account the
amount in controversy of the arbitral matter would ensure the dispute meets
the amount in controversy requirement. Looking at the citizenship of the
arbitral parties will also ensure that the diversity requirement is met.
The Supreme Court has articulated a policy of fashioning simple jurisdictional rules.228 Simplicity creates a uniform law across the country,229
creates clear rules for litigants,230 and encourages predictability.231 The proposed universal rule would greatly simplify jurisdiction in arbitration matters.
C.
Statutory Versus Common Law Change
Finally, this Section considers the form of the proposal, namely a statutory change versus a common law change. This Section considers three
different proposals.
1.
Proposal 1: Amend the FAA to “Look Through” in All Situations
Perhaps the ideal situation would be a congressional amendment to the
FAA. If Congress amended the FAA, it could do so in a number of ways.
This Article proposes that Congress could eliminate all of the jurisdictional
language currently in the FAA,232 and add a new section to the FAA that
reads:
The federal courts have jurisdiction under this Act when the controversy to be arbitrated
would otherwise satisfy the requirements of jurisdiction under Title 28.
This type of statutory language would be a relatively minor change to the
current statute. The purpose of this language would be to change the Vaden
holding as well as apply this new test to the whole of the FAA.
This change is relatively minor, so it would likely not be particularly
controversial to Congress. Further, if Congress amends the FAA, the courts
would not have to continue to grapple with these complex jurisdictional
issues. A legislative change would ease the lower courts’ current burden of
interpreting Vaden and Moses H. Cone consistently. Congress need not be
228
Hertz Corp. v. Friend, 559 U.S. 77, 94-95 (2010).
Id. at 92.
230 Id. at 94 (“[A]dministrative simplicity is a major virtue in a jurisdictional statute.”).
231 Id. (“Simple jurisdictional rules also promote greater predictability. Predictability is valuable to
corporations making business and investment decisions.”).
232 For a discussion of the current jurisdictional language in the FAA, see Section I.C above.
229
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concerned about existing case law and could enact a new statute, creating a
clean slate.
Although the change may be minor, it faces a practical hurdle. Congress has not been particularly interested in amending the FAA. Over the
last decade, numerous bills have been introduced to amend the FAA, but
none of them were successful.233 Many scholars have recommended changing the FAA, but often these recommendations fall on deaf Congressional
ears.234
2.
Proposal 2: Amend the FAA to Give an Express Jurisdictional
Grant
Congress could also enact a jurisdictional grant. Congress could eliminate the jurisdictional language currently present in the FAA and enact the
following language:
Jurisdiction. The district courts of the United States shall have jurisdiction over motions
arising under this chapter.
This type of proposal would also have the benefit of a certain and universal
change. Because the FAA is a federal statute, it is natural for the federal
courts to have increased jurisdiction to interpret it.
This proposal, while still consistent with the FAA, would create a different type of jurisdictional framework. The FAA would change from being
“jurisdiction neutral” to a statute granting jurisdiction. In addition to the
political difficulties of amending the FAA, additional concerns arise from
this proposal. First, this proposal would significantly increase the jurisdiction of the federal courts.235 Of greatest concern, however, is that an express
jurisdictional grant would potentially eliminate the dual state and federal
regulatory system envisioned by Congress when it originally passed the
FAA.236 Notably, the dual regulatory system preserves federalism and allows the states ground to create an arbitration system that best meets the
needs of their citizens.237 In addition, if the FAA contains an express jurisdictional grant, then the decision regarding which court to entertain an arbi233 David Horton & Andrea Cann Chandrasekher, After the Revolution: An Empirical Study of
Consumer Arbitration, 104 GEO. L.J. 57, 116-17 & n.345 (2015) (describing attempts to amend the
FAA and listing bills that failed to pass).
234 Id. at 116-17 & n.347 (citing scholarly support for change that has been consistently rejected).
235 See infra Section IV.A.
236 In a recent law review article, I argued the importance of a dual regulatory system for arbitration. Kristin M. Blankley, Impact Preemption: A New Theory of Federal Arbitration Act Preemption, 67
FLA. L. REV. 711, 711 (2015).
237 Id. at 769-71.
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tration motion becomes a purely strategic decision on the part of the litigants.
Overall, the drawbacks of an express jurisdictional grant outweigh the
benefits of simplicity. In addition, this type of change would require action
by Congress, which is unlikely. While this type of legislative change is appealing, the practical situation makes this avenue unlikely.
3.
Proposal 3: Common Law Change
The third avenue for this proposal would be through common law
change. This method would likely be the best avenue for jurisdictional
change. The primary benefit of a common law change is that it does not
rely on any action on the part of Congress.238 Arbitration scholars have suggested legislative change for years,239 and none of that scholarship has provoked Congressional action. Instead, the Supreme Courts and lower federal
courts should take the lead and begin to read the statute in the manner described above. The courts could accomplish this task with full support of
the statutory text and original intent of the 1925 Congress that enacted the
FAA.
The primary drawback is that this proposal would require a reversal of
the Vaden decision. The Supreme Court does not often reverse itself,240 and
the chances of reversing the Vaden decision are low. Further, a common
law approach would necessarily be patchwork. Because Vaden only involved the jurisdictional question in a small fraction of cases, the resulting
cases have spurned a wide variety of tests. Correcting these decisions
238
Many scholars have all but given up on suggesting that Congress amend the FAA. See Janet
Cooper Alexander, To Skin A Cat: Qui Tam Actions as a State Legislative Response to Concepcion, 46
U. MICH. J.L. REFORM 1203, 1203 (2013) (“Amending the Federal Arbitration Act to overturn Concepcion would be a relatively simple exercise in legislative drafting, but in the current political climate such
efforts are unlikely to succeed.”); see also William W. Park, The Specificity of International Arbitration:
The Case for FAA Reform, 36 VAND. J. TRANSNAT’L L. 1241, 1245 n.14 (2003). Congress has, however, made some small changes to arbitration law in the last decade. Notably, Congress has enacted laws
that would completely remove pre-dispute arbitration clauses from a number of different types of disputes. See, e.g., Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203,
sec. 1414(a), § 129C(e)(1), 124 Stat. 1376, 2151 (2010) (codified at 15 U.S.C. § 1639c(e)(1) (2012))
(prohibiting contract terms that require arbitration for any controversy arising out of a mortgage loan
transaction for a primary residence); Department of Defense Appropriations Act, 2010, Pub. L. 111-118,
§ 8116, 123 Stat. 3409, 3454-55 (prohibiting arbitration clauses in employment agreements for military
contractors regarding Civil Rights Act claims (Title VII) and certain tort claims).
239 See, e.g., EDWARD BRUNET ET AL., ARBITRATION LAW IN AMERICA: A CRITICAL ASSESSMENT
94 (2006) (arguing for a change to Section 4 to clarify application to state courts). These proposed
changes largely concern issues of federalism and the proper scope of federal authority in the area of
arbitration.
240 See generally Christopher P. Banks, The Supreme Court and Precedent: An Analysis of Natural
Courts and Reversal Trends, 75 JUDICATURE 262 (1992).
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through the common law would require coordination between courts and
perhaps the Supreme Court’s willingness to take upwards of four arbitration
jurisdictional cases in order to ensure that the rule is consistent across all
types of jurisdictional settings. A common law change would also require
the courts to read Vaden and Moses H. Cone consistently, which would
likely require the courts to note that the jurisdictional “ruling” in Moses H.
Cone was not a ruling at all. Further, a common law approach might have
unintended consequences for other areas of federal court jurisdiction if the
Court is not careful to limit its holdings to arbitration cases.
Despite the shortcomings, the common law approach may be the most
realistic method for jurisdictional change. Although the first Congressional
approach outlined above would be a significantly cleaner resolution, the
likelihood of statutory change is extraordinarily small. Incremental common law change, at this point, may be the only realistic option.
IV. IMPLICATIONS OF THE PROPOSAL
A.
Changes in Current Jurisdiction
The practical effect of Proposal 1 or 3 would be an increase in jurisdiction in some areas while decreasing jurisdiction in other areas. This rule
would give jurisdiction in cases where, as in Vaden, a counterclaim raises
an issue of federal law. This proposal would also ensure jurisdiction to confirm or modify awards if the underlying arbitration involved a federal question. Additionally, this rule would ensure that the amount in controversy
would be calculated based on the amount in controversy in the arbitration,
no matter what stage the parties seek court involvement. This “look
through” would provide jurisdiction in federal question cases when an arbitrator issues a “defense award.”
Utilizing this approach, however, would exclude one group of existing
cases from federal court jurisdiction. That group consists of cases involving
non-diverse arbitration parties where only a subset of diverse parties appears on the federal court petition. Because the federal court would not
have jurisdiction in those matters anyway (other than the ability to manufacture jurisdiction), they already do not belong in federal court.
Overall, this test would likely result in a net gain of cases within the
federal court system, although there are no reliable statistics on how many
of each type of case exist. Critics may argue that this proposal would “open
the floodgates” to the federal courts. Ordinarily, a net increase of judicial
resources might cause concern. In this context, however, the judicial resources required are relatively minimal. Because the FAA utilizes only motion practice, the strain on judicial resources would likely be minimal.
The practical effect of Proposal 2 would be a substantial increase in
the amount of cases eligible for federal court jurisdiction. Although the
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amount of time per case is low, if the courts accept enough cases, taxing of
judicial resources may occur. The jurisdictional grant under Proposal 2 has
the potential to open the proverbial floodgates. The substantively more
modest proposals set forth in Proposal 1 and 3 provide the better balance of
federal and state regulation and would not have a significantly negative
effect on the existing judicial resources.
B.
Departure from Similar Jurisdictional Treatment in Declaratory
Judgments
The FAA’s jurisdictional questions are relatively similar to some of
the jurisdictional questions surrounding the DJA.241 Other arbitration scholars have compared the jurisdictional limits of the DJA to the FAA.242 Both
statutes ask a court to make a non-monetary determination affecting the
rights of the parties, and both statutes deal with procedure.243 Neither statute
provides a jurisdictional grant.244
As with the FAA, to determine federal question jurisdiction under the
DJA, courts utilize the well-pleaded complaint rule for purposes of federal
court jurisdiction.245 In diversity jurisdiction cases, the usual rules regarding
complete diversity and amount in controversy apply.246 In determining
whether the parties are diverse, the court will consider the parties specified
in the complaint, as well as all necessary parties under Rule 19 of the Federal Rules of Civil Procedure.247 In these ways, the courts have interpreted
both statutes in a similar manner.
Interpreting the FAA and the DJA consistently creates some judicial
efficiency. Courts only need one test for both statutes. The proposal set
forth here would require courts to apply two different rules to these statutes.
The judicial efficiencies, however, do not overcome the textual and policy
reasons for treating these differing areas of the law differently. The DJA
contemplates full litigation, while the FAA intends to promote efficiency
through expedited procedures. Further, the purpose of the DJA is for the
241
See Szalai, supra note 8, at 365.
See id. at 366-67.
243 Declaratory Judgment Act of 1934, 28 U.S.C. §§ 2201-2202 (2012); see supra notes 2-3 and
accompanying text.
244 28 U.S.C. § 2201 (“In a case of actual controversy within its jurisdiction . . . any court of the
United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations
of any interested party seeking such declaration, whether or not further relief is or could be sought.”);
see sources cited supra note 3 (noting a similar lack of jurisdictional grant for the FAA).
245 Scott L. Schmookler & Brian Bornstein, The Strategic Use of Declaratory Judgment Actions in
Fidelity Litigation, 8 FIDELITY L.J. 41, 49-50 (2002) (quoting Pub. Serv. Comm’n v. Wycoff Co., 344
U.S. 237, 248 (1952)).
246 Id. at 51-53.
247 Id. at 55-57.
242
2016]
A UNIFORM THEORY OF FEDERAL COURT JURISDICTION
567
court to hear and decide the merits of an issue. The purpose of the FAA, by
contrast, is to ensure that contracts to arbitrate and arbitration awards are
enforced. Given the vast differences in the purposes of the statutes, courts
should interpret them differently and according to their unique underlying
policies, not whether they happen to have matching tests.
C.
Impact on Class Action Arbitrations
The proposed tests could have an impact on class action arbitration
practice.248 In these cases, parties often appeal preliminary determinations,
such as whether a contract supports a class procedure and class certification.249 If the courts were to look through only to the facts and circumstances surrounding the interlocutory award, federal jurisdiction would rarely, if
ever, lie because those matters do not typically fall under federal law. Diversity jurisdiction arguably would not lie either because these preliminary
determinations do not involve an award of any damages. The Supreme
Court’s recent class action rulings appear to suggest that class action arbitration is fundamentally different than bilateral arbitration,250 and perhaps a
different jurisdictional rule is warranted.
The nature of class action arbitrations, however, is not sufficiently different to warrant a differing test for this one situation. The ease and predictability of a single jurisdictional test would benefit the court and the parties.
Predictable access to the federal courts would aid the policy of efficient
dispute resolution, especially in an area such as class action arbitration,
which may be more likely to be a slower and more cumbersome process
through its own process design. Additional jurisdictional questions for the
courts would slow the system down even further. In other words, the same
jurisdictional rule should apply to class actions as any other inquiry under
the FAA. The issue of class action arbitration, however, is extraordinarily
complex, and more thorough analysis of this issue is beyond the scope of
this Article.251
248
See generally Blankley, Did the Arbitrator “Sneeze”?, supra note 200. In that early 2010
Article, I advocated against a grant of federal court jurisdiction for non-final arbitration “awards” in
class action cases. I also argued that the interlocutory arbitration awards did not constitute an “award”
for the purposes of the FAA, a proposal that was later implicitly rejected by the Supreme Court in the
2010 case of Stolt-Nielsen. Although I continue to have doubts as to the jurisdiction of interlocutory
arbitration awards, the law is settling on the issue that some interlocutory “awards” are immediately
appealable, especially in the area of class actions.
249 See CLASS RULES, supra note 198, rule 3.
250 See, e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 348 (2011).
251 For more information on class action arbitrations, see Sarah Rudolph Cole, On Babies and
Bathwater: The Arbitration Fairness Act and the Supreme Court’s Recent Arbitration Jurisprudence, 48
HOUS. L. REV. 457 (2011); Jean R. Sternlight, Tsunami: AT&T Mobility LLC v. Concepcion Impedes
568
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[VOL. 23:3
CONCLUSION
The current state of arbitration jurisdictional jurisprudence is complex,
unduly confusing, and lacking an overarching organizing principle. These
complexities stem from ambiguous language in the FAA and the courts’
piecemeal rulings in the area. The differing jurisdictional tests turn on factors not relevant to arbitration. The increasing nuances in the jurisdictional
tests often rely on litigation factors that do not support the policies underlying the FAA or the practice of arbitration.
Simple changes could eliminate all of these issues. A common law or
statutory change that would require a simple “look through” to the subject
matter of the arbitral controversy would greatly simplify this inquiry. The
uniform “look through” would create a simpler, more efficient system and
protect the virtues of arbitration—namely efficient dispute resolution designed by the parties through a contractual relationship. By simplifying the
gatekeeping jurisdictional issues, courts will not need to spend months (and
years, in some cases) on preliminary issues, long before ever considering
the merits of the dispute. Despite changes to status quo, this Article proposes a workable solution that not only eases the burdens of courts and litigants
but also supports the underlying policies of the FAA.
Access to Justice, 90 OR. L. REV. 703 (2012); Maureen A. Weston, The Death of Class Arbitration After
Concepcion?, 60 U. KAN. L. REV. 767 (2012).